Deep Interchange Cuts for SecureCode Could Hike Merchant Enrollment

MasterCard's recent decision to slash its interchange pricing for e-commerce merchants that adopt the bank card association's SecureCode authentication program should significantly improve the business case for the technology and put pressure on Visa USA to respond, industry sources say. “I can't imagine [Visa is] going to let MasterCard steal the show,” says Xavier Kris, managing director at Retail Decisions USA, a processing gateway for online merchants. In an announcement sent last month to its members, MasterCard laid out new interchange pricing for acquirers when merchants use SecureCode, effective Oct. 1. The new pricing reflects deep discounts from the rates most online merchants now pay and go well beyond a 10-basis-point incentive discount Visa is introducing next month (which is five points greater than the incentive it originally rolled out 18 months ago) for its similar Verified by Visa program. Both associations have been disappointed at merchant adoption of the so-called 3D Secure authentication system?the generic technology from which both VbyV and SecureCode are derived?and by introducing pricing incentives are said to be responding to acquirer and merchant complaints that the technology is costly to install. “It can only help the business case,” says Kris of MasterCard's latest move. The new rates acquirers?and, by extension, Internet merchants?will pay depend on whether the transaction is a credit or debit payment and on whether the card issuer and cardholder have enrolled in and enabled SecureCode. For credit and debit card payments, the new interchange rate is actually lower when the merchant, but not the issuer and cardholder, participate than when they do. The latter case, when all three parties participate, refers to what MasterCard calls a fully authenticated transaction. Industry sources say the lower rate for transactions not fully authenticated?when only the merchant is using SecureCode?is meant to encourage merchant enrollment in the program without waiting for issuers to climb aboard. As a sweetener to issuers, MasterCard includes in its new pricing a 10-basis-point increase in interchange income for issuers that enroll and enable SecureCode. MasterCard is also introducing a small stick to go with its substantial carrot. Effective Oct. 1, interchange for merchants not enrolled in SecureCode will increase 5 basis points, to 1.95% plus 10 cents on credit card transactions. Interchange on signature-debit payments will stay the same, at 1.64% plus 16 cents. Effective the same day, credit card interchange on fully authenticated transactions will drop 22 basis points from the new rate to 1.73% plus a dime. For credit card transactions not fully authenticated, the cut is 32 points, to 1.63% plus 10 cents. On an $80 Internet order not fully authenticated, a merchant adopting SecureCode will pay $1.40, saving 22 cents from the current rate and 26 cents on the new rate. Debit interchange on fully authenticated payments will plunge 49 basis points on the rate and a penny on the fixed fee, to 1.15% plus 15 cents. Transactions not fully authenticated will drop 59 basis points and a penny, to 1.05% plus 15 cents. This means merchants will pay 99 cents on an $80 SecureCode debit transaction not fully authenticated, a 48-cent, or 33%, cut from the current rate. In addition to pricing incentives, both Visa and MasterCard have introduced rules that shift the liability for losses arising from certain chargebacks from merchants to issuers when merchants adopt 3D Secure. Visa allows the shift whether or not issuers have enrolled. MasterCard requires that the transaction be fully authenticated. With 3D Secure systems, consumers enter private codes, similar to PINs, when they are ready to check out and pay on merchant Web sites. Issuers return an authorization when the code entered matches the code they have on file. Currently, 56,000 merchants worldwide participate in VbyV, while 48,000 have adopted SecureCode.