Star Ushers in New Rates, with Interchange Spiffs for Some Issuers

Star, one of the nation's largest electronic funds transfer networks, on March 1 will implement changes in its interchange pricing for point-of-sale transactions that in some cases will include dramatic increases and an elimination of fee maximums. The network is also introducing on April 1 a new fee category that will offer even higher interchange income for issuers that commit all of their volume to Star. The new category, called “All-Star,” imposes interchange of anywhere from 1.5 cents to 2.5 cents on top of the new rates, depending on merchant category and transaction volume. “To earn the highest Star interchange, all of a financial institution's BINs must participate in Star, be included in the All-Star BIN table, and route all PIN-based transactions through the Star Network,” says a spokesperson for First Data Corp., Star's parent company, in an e-mail message. BINs, or bank identification numbers, refer to the identifiers for PIN debit cards issued by member banks. The move follows a decision by the rival NYCE EFT network, announced to processors in October, to add 1.1 cents in interchange for issuers in a so-called Premier Issuer category. The new NYCE category takes effect early this year. Interchange is set by networks and paid by acquirers to issuers. Acquirers typically pass the fee on to merchants along with a markup. Star's new rates carry significance because the network is one of only a handful of PIN debit systems that can claim national or near-national coverage in terms of cards. It is second only to Visa Inc.'s Interlink network in transaction volume. Among merchants accepting Star transactions, the most dramatic increases will be felt by those in the quick-service, medical, and small-ticket arenas, according to a Star document obtained by Digital Transactions News. A fast-food restaurant that currently pays 1.25% plus 3 cents in interchange cost will see the fixed-fee component of that levy quintuple to 15 cents. On a $10 transaction, the fee will jump 77%, to 27.5 cents from 15.5 cents. All-Star issuers will get an extra 2.5 cents, bringing the levy to 30 cents. Also, Star is doing away with the existing 45-cent maximum, which would have capped the fee on all transactions over $24. Now the fee will simply rise with the transaction ticket. On transactions at or under $15, a common co-pay amount, medical providers will see no change in the percentage component of their interchange, 1.2%, but will bear a quadrupling of the fixed fee, from a nickel to 20 cents. That will make the fee on a $15 ticket rise 65%, from 23 cents to 38 cents. Again, All-Star issuers will get an additional 2.5 cents. Similarly, the levy on merchants considered small-ticket retailers will go from 1.25% plus a nickel to the same percentage plus 15 cents on all transactions at or under $10, pushing the fee on a $5 payment to 21.25 cents from 11.25 cents. Merchants will pay 2.5 cents more for All-Star transactions. Least affected could be gasoline stations. These merchants will see no change in their rate, 0.8% plus 13 cents. But All-Star transactions will carry an extra 1.5 cents to 2.5 cents in interchange, depending on volume. And Star has scrapped a 70-cent cap that now applies to the petroleum category, a move that will let interchange continue to rise on tickets over $71.25. High-volume groceries will get hit with a relatively modest 2.8% increase, to 18.5 cents from 18 cents per transaction. But grocers in the two lower volume tiers will see their levies rise 9.5% and 8.3%, pushing their fees from 21 cents to 23 cents and from 24 cents to 26 cents, respectively. All-Star issuers will collect either 1.5 cents or 2.5 cents more, depending on volume. While the new rates will bring newfound revenue to Star issuing banks, it could provoke merchants already angered about rising interchange for both credit and debit card transactions. At least three bills are pending in Congress that would in one way or another regulate card interchange. But Star argues its changes are justified. “Star believes that PIN debit offers a more secure and convenient payment option for consumers and merchants, and that PIN interchange rates offer a competitive payment option when compared to total convenience, costs, and risks associated with alternative payment options,” says the First Data spokesperson.