Visa, MasterCard, and the PIN debit networks are starting to release their annual Spring interchange and dues updates. For the most part, the updates reflect interchange increases that will be passed on to merchants, and will drive up the overall effective cost of electronic payments.
Visa has taken a major step by pricing a Visa signature debit card (check card) transaction the same as a Visa Interlink PIN debit transaction, both at 0.95% + $0.20 plus assessment or switch fee, respectively. Other PIN debit networks are also increasing their interchange rates or eliminating the cap on interchange fees, and thus, are slowly eroding the cost differential between signature and PIN debit transactions. Star was the last major debit network to remove its cap on interchange fees. See the following table for the latest base PIN-debit interchange rates for retail merchants (different rates apply for merchants in select retail verticals and merchants processing billions of dollars in card sales):
Note: Market share data based on total PINed transactions in the United States in the 2009 EFT Data Book
Each of these increases on an individual basis is not significant but added together and coupled with increases over the last five years, they represent significant processing fee increases to merchants. It seems the banks and networks are getting greedy and sowing the seeds for growth in alternative payments, private label credit, private label debit, and decoupled debit cards. According to consulting firm Javelin Strategy and Research, about 20 percent of all online transactions now take place over alternative payment systems (PayPal, Google Checkout, and up and coming startups like Obopay and many others) and that number will grow to nearly 30 percent in just three years. Read this article about the future of money in Wired Magazine.
So here are the big changes from Visa & MasterCard
Effective April 2010, MasterCard will be increasing their assessment fee from 0.095% to 0.110% as well as adding new Interchange categories and making many other Interchange adjustments. The 1.5 basis point increase in assessments will cost a merchant an extra $150 for every $1 million processed in MasterCard credit and debit cards.
Effective April 2010, as noted earlier, Visa’s big move is to price a Visa signature debit (check card) transaction the same as a Visa Interlink PIN debit transaction, both at 0.95% + $0.20.
Visa has also announced some changes coming this July and October. In July 2010, Visa will extend its No Signature Required (NSR) program to most merchant category codes (MCCs). Transactions on U.S. issued cards of $25 or less from most MCCs will be eligible for the NSR program. In October 2010, Visa will extend its Small Ticket Interchange to most merchants. This is an effective reduction in the overall Interchange costs for most merchant categories for sales below $15. Merchants that will realize this benefit are merchants who are on interchange pass-through pricing. Merchants paying tiered rates or bundled rates will not realize any benefit.