USAT Strikes a Deal With Visa, But No Word About a Fix for Small-Ticket Debit Interchange

In what amounts to a reminder about an unanticipated consequence of the Durbin Amendment debit card regulations, USA Technologies Inc. (USAT) reported Wednesday that it had extended its agreement with Visa Inc. that provides the vending-machine payment network operator with favorable pricing on small debit transactions.

The news wasn’t a big surprise. Malvern, Pa.-based USAT said earlier that it expected that the one-year agreement it struck with Visa last October would be extended. The agreement is now in force until Oct. 31, 2013, and will automatically renew for another year unless either party gives at least 60 days notice of non-renewal.

Still, the extension apparently was the fuel that sent USAT’s stock price rocketing up 22% Thursday. The deal removes a source of uncertainly about a big portion of USAT’s transaction volume and revenues. Last year, USAT said 82% of its transactions were small-ticket debit card sales, and 75% of those involved Visa debit cards.

In a regulatory filing called an 8-K, USAT didn’t say exactly what its interchange rate for Visa debit transactions would be under the extended agreement. “The network [Visa] has agreed to make available to the company reduced interchange fees for debit card transactions,” the filing says. “These reduced interchange fees will allow the company to continue to accept the network’s debit card products during the term of the agreement, as amended, without adversely impacting the company’s historical gross profit from license and transaction fee revenues.”

A year ago, USA Technologies indicated it would be paying about what it was paying under pre-Durbin interchange rates for card-present small tickets, 1.55% of the sale plus 4 cents.

Little noticed earlier, the issue of small-ticket debit card pricing moved to center stage after Oct. 1, 2011, when the Federal Reserve Board’s debit-interchange price controls implementing the Durbin Amendment in 2010’s Dodd-Frank Act took effect. Both Visa and MasterCard Inc. turned the Fed’s cap for regulated issuers, 21 cents plus 0.05% plus a penny for fraud control, into a single rate of an identical amount on sales below $15. Those moves had the effect of raising merchants’ costs for most sales of soda, candy, and snacks when the customer paid with a debit card from a regulated issuer, one with more than $10 billion in assets. USA Technologies said the revised interchange rates would raise acceptance costs on its average sale by more than 200%.

The ensuing outcry prompted Visa to strike deals with USAT and Apriva Inc., another payments processor for unattended card-acceptance locations such as vending machines. Those two providers failed to reach similar accords with MasterCard Inc. and stopped accepting that network’s debit cards although they continued to accept MasterCard credit cards. It’s unclear whether USAT has resumed accepting MasterCard debit cards. A spokesperson could not be reached for comment, but in the new filing, USAT says, like it did earlier, that “the company does not anticipate accepting any debit cards with interchange fees that are higher than the rates provided under the [Visa] agreement.” A spokesperson for Scottsdale, Ariz.-based Apriva was unavailable for comment.

USA Technologies’ renewed pact with Visa raises the question of whether the networks some day will set new interchange pricing for small-ticket debit transactions that would remove the need to strike piecemeal agreements with specialist providers. While the networks in past years have often updated their interchange schedules in October, so far this month neither has posted changes to the rates they published last spring on their public Web sites.

“The [USAT] 8-K stands for itself; there’s been no rate change,” says a Visa spokesperson. A MasterCard spokesperson did not respond to a Digital Transactions News request for comment.

The Durbin Amendment’s chief sponsor, U.S. Sen. Richard Durbin, D-Ill., said in August that he would like to have what he calls a loophole in the Fed’s price controls fixed to address the small-ticket issue, but he didn’t say specifically how that would be accomplished.