MasterCard Will Post Interchange Rates, Cap Fees for Gas Retailers

Bowing to merchant pressure, MasterCard Inc. said Tuesday it will publish its U.S. interchange rates on its Web site and cap interchange fees on certain gasoline purchases. The moves, which will include the first time either of the two major bank card associations has published its interchange rates publicly, follow a period of more than a year in which merchants have filed a slew of anti-trust lawsuits against Visa USA and MasterCard challenging interchange and in which gas prices have skyrocketed. Rising costs at the pump have brought interchange on gas purchases in particular under the scrutiny of petroleum merchants and Congress. MasterCard, which became a public company this spring, says in its announcement Tuesday that it will post all interchange rates “that apply to U.S. merchants” on a site it maintains for merchants, www.mastercardmerchant.com, starting Nov. 1. The site also contains the association's rules manual for card acceptance. While the announcement gives no specific effective date for the cap on gasoline interchange, a MasterCard spokesman says the “drop-dead” date is April 1, 2007. MasterCard needs time, he says, to implement the change with acquirers and petroleum retailers. “We want to implement it as soon as possible, but we have to work with multiple partners,” says the spokesman. “April 1 is the drop-dead, but the target is as soon as possible.” In a statement it released after MasterCard's announcement, Visa is silent on the issue of gasoline interchange and gives little indication that it intends to follow its bank card rival and publish its interchange rates publicly. “There is full visibility of pricing within the Visa system,” says Rhonda Bentz, vice president at Visa USA, in the statement. “Visa is committed to providing as much visibility as possible into our operations and will continue to seek opportunities to increase clarity into all parts of our business and strengthen the organization's structure.” MasterCard's cap, which applies to consumer credit and signature-debit cards, will not affect gas purchases up to about $50. Purchases over that amount will carry the same interchange, in absolute terms, as a $50 purchase, according to the spokesman. As a result, the announcement says, the cap could save gas marketers as much as 21% on interchange on a $60 gas purchase. Like Visa, MasterCard's rate schedule includes a wide array of prices that depend on merchant type and other circumstances. At MasterCard's so-called Merit III base credit card rate of 1.64% plus a dime, a $50 purchase costs 92 cents in interchange. A $60 purchase pushes interchange up 17%, to $1.08. Interchange is a key component of the total card-acceptance cost, known as the discount rate, borne by merchants. Interchange is collected by acquirers and passed on to card issuers in the network. Gasoline marketers have complained for at least a year about how interchange costs were squeezing their margins as pump prices rose. At a U.S. Senate hearing in July, a small gasoline retailer said interchange was hurting her profits and said “normal” competition was not keeping rates in line (Digital Transactions News, July 19). Among other actions, an executive with a regional gasoline-marketers' association wrote a letter last fall to a Congressperson arguing for a cap on bank card interchange (Digital Transactions News, Sept. 1, 2005). “Merchants have told us that interchange fees on rapidly rising gasoline prices are a significant concern to them,” said Joshua Peirez, group executive for global public policy at MasterCard, in a statement. “We believe that putting a cap on interchange fees when consumers use their MasterCard cards for gasoline purchases will benefit all gasoline retailers.”