Visa Hikes Overall Interchange 0.6%, Effective April 14

In a terse announcement released on Thursday, Visa USA said its overall effective interchange rate for the coming year will be 1.77%, up 0.6% from the 2006 systemwide rate. Without giving further details about its new rates, Visa said it will post a rate card laying out its entire schedule of fees on its Web site on Saturday, the same day the rates take effect. The Visa announcement follows by nearly two months a notice from rival MasterCard Worldwide concerning its new interchange rates (Digital Transactions News, Feb. 28). MasterCard, too, introduced relatively small changes, but generally reserved its higher rates for rewards cards carrying the richest perks. MasterCard's new schedule also takes effect this month, though some rates become effective in June. Interchange, which is set by the bank card networks, applies to each card transaction and is paid to issuers by acquirers, which ordinarily pass the fee on to the merchant with a markup. The fee is usually a percentage or a percentage plus a fixed fee. With steady increases over the years, interchange has become increasingly controversial. Merchants in recent years have complained it has climbed too high and now accounts for too great a portion of their costs. Indeed, despite the seemingly modest overall increase it implies, Visa's new interchange schedule may not be well received by merchants, particularly those engaged in some 40-plus lawsuits filed against Visa, MasterCard, and major banks by a wide range of retailers since 2005, alleging antitrust violations in the setting of interchange. These cases are being consolidated into a class action filed in federal court in Brooklyn, N.Y. “I'm certainly not pleased, nor will the other class members be pleased when they find out, nor will the millions of retailers that take Visa,” says Mitch Goldstone, co-owner of 30 Minute Photos Etc., Irvine, Calif., a lead plaintiff in one of the first cases filed. “It's entirely in the wrong direction and speaks volumes of [Visa's] lack of listening to their customers.” Visa, though, says some of the changes it is making with its new fee schedule may appeal to merchants. For example, the network is now allowing bars, beauty shops, and taxis to process tips on top of transaction amounts at the most favorable interchange rate. Previously, authorization amounts had to match settlement amounts to earn these rates, so tips resulted in higher fees. Visa is adding these businesses to restaurants, for which it had already lifted the tip restriction. The network is also adding charities, child-care operations, subscription-based businesses, and fuel dealers to its so-called CPS Retail 2 merchant category, which carries the most favorable rates. Although Visa's public announcement comes just two days before the effective date of the new rates, the San Francisco-based network says issuing and acquiring institutions were notified of the rate changes, along with the new approach to tips and the new CPS Retail 2 merchants, between October and December.