Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
After a hiatus of more than three years, vending machines that get payment services through USA Technologies Inc. will soon be accepting MasterCard Inc.’s debit cards again as the result of an agreement between the two companies that USA Technologies announced Friday.
Under the three-year agreement, “MasterCard has agreed to make available to the company reduced interchange rates for small-ticket debit card transactions in the unattended beverage and food-vending merchant category code,” a USA Technologies filing with the Securities and Exchange Commission says. “The reduced interchange rates will become effective when the company’s card processor notifies MasterCard that it has effectuated the reduced interchange rates.”
The filing did not disclose the rates or other details about the agreement. Neither Malvern, Pa.-based USA Technologies nor MasterCard responded to requests for comment from Digital Transactions News.
The pact arises from an unintended consequence of the Durbin Amendment in 2010’s Dodd-Frank Act that had the effect of raising interchange on low-value transactions involving large financial institutions’ debit cards. The Federal Reserve Board’s rule implementing the debit regulations mandated by the amendment in late 2011 cut the debit interchange of issuers with more than $10 billion assets in half by imposing an interchange cap of about 23 cents on a debit transaction. MasterCard and Visa Inc. attempted to recoup some of the lost income for their big issuers by raising interchange rates on small transactions, which had been lower than the cap, up to the level of the cap.
USA Technologies has struck several similar agreements with Visa since the Fed’s Durbin rule took effect. The most recent agreement, announced in November, also covers credit cards.
Until now, however, USA Technologies and MasterCard had been unable to agree on debit-acceptance pricing. “As previously reported, MasterCard had significantly increased its interchange rates for small-ticket regulated debit card transactions effective Oct. 1, 2011, and as a result, the company ceased accepting MasterCard debit card products in mid-November 2011,” the filing says. “Pursuant to the agreement, upon effectiveness of the reduced interchange rates, the company has agreed to accept MasterCard debit card products for small ticket debit card transactions in the unattended beverage and food vending merchant category code.”
The business case for both companies to end their debit feud has grown over the past couple of years. As a network, MasterCard, a distant No. 2 in the U.S. debit market after Visa, wants more of its branded cards in the hands of consumers and more merchant locations where those consumers can use them. MasterCard’s debit business is growing—its U.S. issuers had 172 million debit cards in circulation at the end of 2014’s third quarter, up 31% from 131 million at the end of 2011.
USA Technologies, meanwhile, has been steadily growing its ePort Connect wireless network of vending machines and other attended locations. The network had 276,000 connections as of Sept. 30, up 27% from a year earlier. Acceptance of MasterCard debit cards can only add to the network’s incremental transaction volume.
