Eyeing Debit, Visa Posts Its Canadian Interchange Rates on the Web

In another sign of sweeping changes in the Canadian payment card market, Visa Inc.'s Visa Canada unit last week published interchange rates on its Web site for the first time. The posting comes at a time when merchants are complaining about higher rewards-card acceptance costs and expressing fears that possible Visa- and MasterCard-branded debit cards could undermine Canada's low-cost Interac PIN-based debit card network. “There's a growing need for transparency in our system,” Brian Weiner, director of strategy and interchange at Toronto-based Visa Canada,” tells Digital Transactions News. “We've been talking about doing this for some time.” Weiner also notes that Visa's U.S. unit began posting its rate schedule two years ago. “There is a desire to align our practices in North America,” he says. The longstanding practice by both Visa and MasterCard when they were bank-owned associations was to disclose interchange rates only to members or those the card associations deemed needed to know, providing they agreed to confidentiality. The pricing schedules, however, became an open secret as word spread among payment processors, independent sales organizations, and merchants. MasterCard now publishes its U.S. rates on its Web site, but not its Canadian rates. MasterCard's Canadian office would not provide the current interchange schedule to Digital Transactions News. In publishing the rates, Visa Canada did not make any changes to the pricing schedule it set last April. The schedule further differentiates pricing by card type and transaction volume, a practice Visa began in 2003 when it set different pricing for consumer credit cards, commercial cards, and debit/prepaid cards. Before that, Visa had one rate for more than 30 years, according to Philip Andreae, a consultant who works in the U.S. and Canada and was a Visa Canada executive. Visa now has separate rates for grocery stores, gas stations, and recurring payments. Visa is trying to attract more utilities, property managers, and other merchants that generate recurring bills as acceptors, according to Weiner. “There are segments of … merchants that have not accepted our product,” he says. “We felt they required a unique interchange rate.” The rates are 1.40% or 1.60% on consumer credit cards and 0.60% on debit cards. Canadian merchants this year objected to what they see as higher credit card acceptance costs. They say issuers are pumping out more premium cards that cost merchants more to accept than plain-vanilla cards. On an electronically authorized transaction with the contents of the card's chip or magnetic stripe captured, the new Visa Infinite card costs 1.60% for a so-called Threshold 1 merchant, one that generates C$2 billion or more in Visa volume annually, compared with 1.40% for standard, gold, and platinum consumer credit cards. Corresponding rates for Threshold 2 merchants (those generating C$850 million to C$2 billion in Via volume) are 1.65% and 1.45%. In protest of the new premium cards and what they see as high interchange in general, merchant groups that include the Retail Council of Canada, the trade association for bigger retailers, have launched a Web site called StopStickingItToUs.com and are appealing to government for relief (Digital Transactions News, Sept. 10). An RCC spokesperson could not be reached for comment about Visa's posting of its interchange rates. Weiner, however, says that that despite the introduction of Infinite, the blended credit card rate remains at the same as before April, 1.58%. “Thus far we haven't seen a big reaction,” he says regarding the posting of the rates, adding that many retailers may not yet be aware of it despite a Visa press release. As it has since 2003, Visa's current interchange schedule includes identical debit and prepaid card rates. The 2008 rate sheet includes 15 basis points (0.15%) of the sale plus C5 cents for gas, grocery, and Performance 1 and 2 merchants; and 25 basis points plus C5 cents for other merchants provided the transaction is electronically authorized and captured. Thus, big merchants would pay 20 cents on a $100 debit sale compared with up to 15 cents for Interac, according to the StopStickingItToUs site. There aren't any Visa-branded debit cards in Canada yet. Asked why Visa publishes rates for a card that doesn't exist, Weiner says, “In our system, we put out card products and we put out default rates. It's up to the issuers to decide if they want to put out our cards or not.” Retailers fear that banks are about to issue Visa and MasterCard debit cards that will cost them more to accept than Interac, the national debit network popular both with consumers and merchants (Digital Transactions News, Sept. 4). Issuing banks, however, want to generate more money from debit and the not-for-profit Interac Association is looking at a possible restructuring into a for-profit entity. Weiner would not say if any issuers are about to launch Visa-branded debit cards, but he does say that Visa wants to give Canadian consumers and merchants more debit choices. “There is only one supplier today,” he says. “Clearly [debit] is a market we would like to get into.” Not only do issuers want more debit interchange revenue, but the card networks, which are now publicly traded companies, stand to gain transaction revenues if they can get their debit cards into the market, according to Jordan Cohen, president of Global Payments Canada, one of the country's major merchant acquirers. “The debit transaction volumes are 60% of all transactions in Canada, and clearly Visa and MasterCard would like to participate in that,” he says. Visa's rate schedule can be found at www.visa.ca/en/aboutcan/mediacentre/interchange/facts-about-interchange/.