November 29, 2012
Fewer than two months after a competitor announced a similar deal, wireless payments provider Apriva Inc. this week reported that it would continue offering pre-Durbin Amendment discounted acceptance pricing on Visa cards to vending-machine operators.
Debit card interchange in late 2011 became a major concern for vending-machine operators and other merchants that accept very small card payments because of how Visa Inc. and MasterCard Inc. set small-ticket interchange in the wake of the Federal Reserve Board’s price cap that implements the Durbin Amendment debit regulations in 2010’s Dodd-Frank Act. The networks turned the board’s debit card cap of 21 cents plus 0.05% of the sale and another penny for fraud control, a cap affecting issuers with $10 billion or more in assets, into a flat rate at that amount for small tickets. Since debit predominates in card payments at vending machines and other small-ticket venues, those moves had the effect of raising interchange by more than 200% for many transactions, causing vending-machine owners to cry foul.
Visa, however, has struck agreements with some processors serving small-ticket merchants such as Apriva and USA Technologies Inc. to offer more favorable pricing. USAT Technologies last month announced an extended agreement with Visa. And on Monday, Scottsdale, Ariz.-based Apriva said it could continue a program under which it provides pre-Durbin pricing on Visa debit, prepaid, and credit cards for transactions of $5 or less to its Apriva Vend customers. Apriva would not give pricing details, but Visa’s posted small-ticket debit card interchange rate in 2011’s first half, before the Durbin price cap took effect on Oct. 1 of that year, was 1.55% of the sale plus 4 cents.
Rinaldo Spinella, Apriva’s executive vice president and general manager for unattended solutions, tells Digital Transaction News that the Visa pricing program actually predates the Durbin Amendment, beginning in 2009 as an incentive for machine owners to expand their payment options beyond just cash. Now, with the higher small-ticket rates in effect for regulated issuers who account for about two-thirds of the debit market, the incentive takes on added importance.
“That’s why Visa is extending this program, to specifically address the [issues] vending operators were having,” Spinella says. “They recognized it’s a problem they had to solve because there’s a tremendous amount of vending machines in the United States.”
In fact, there are about 7 million, according to the Chicago-based National Automatic Merchandising Association trade group, although not all of them sell beverages, snacks, and other low-cost items that are at the heart of the Durbin controversies. Visa did not respond to a Digital Transactions News request for comment.
Card payments can greatly boost a vending machine’s sales, according to Spinella, especially among younger consumers such as college students who tend to favor debit cards over cash for everyday purchases. Spinella says that at one university, Apriva added card-acceptance systems to about half of the 400-plus vending machines on campus and almost immediately saw a 35% jump in total sales. After a few months, the boom leveled off but per-machine sales still remain 20% to 25% higher than when they accepted only cash, he says.
“Vending machines traditionally have been cash—coins and bills—but we’re finding that Gen Y, they absolutely love vending machines and they absolutely hate cash,” says Spinella.
Like USA Technologies, Apriva has not been able to strike a similar deal with MasterCard Inc. Thus, Apriva-serviced vending machines in the Visa program will reject a MasterCard debit card, according to Spinella. Machines in Apriva’s network that do not participate in the incentive program, however, will accept MasterCard debit. A MasterCard spokesperson could not be reached for comment late Thursday.
Apriva's Visa agreement runs until Oct. 1, 2013, and then is set to automatically renew for another year.
Apriva, which would not disclose how many vending machines use Apriva Vend, offers wireless payment services to merchants through about 850 independent sales organizations and merchant acquirers. Besides processing for unattended acceptance locations such as vending machines and laundries, Apriva serves point-of-sale and mobile merchants. The company said its point-of-sale gateway processed $2 billion in wireless transactions in the third quarter and that for 2012’s first nine months, the gateway handled $5.91 billion in transactions, up 15% from $5.14 billion in the year-earlier period.
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