A Vending Machine Payment Processor Hopes To Preserve Interchange Incentive

Apriva Inc., a major processor of payment transactions from vending machines, this week told machine owners that it is working to assure their card-acceptance costs will remain stable despite the uncertain status of a program it has with Visa Inc. that gives them an interchange break if they install hardware to accept contactless cards. The program could expire at the end of the year, just three months after the Durbin Amendment’s debit card price controls took effect. Another vending-machine payment processor fears the price controls could actually raise its acceptance costs by 200% or more for some transactions.

“The implementation of new debit card transaction fees by various payments companies as a result of the Durbin Amendment has caused an understandable amount of anxiety and confusion among vending operators, who by and large serve a market which is dominated by consumers who choose to pay by debit card,” Scottsdale, Ariz.-based Apriva said in a statement Wednesday.

Apriva executive vice president for unattended payments Rinaldo Spinella tells Digital Transactions News that Apriva and Visa Inc. entered into what it calls the “Visa Incentive Program” (VIP) in 2009. The program, renewed annually since then, offers vending-machine owners using the Apriva Vend service a cut on debit and credit card interchange if they install a piece of hardware on their machines called a bezel that is capable of reading contactless cards. Transactions from magnetic-stripe cards, not just ones from contactless cards, qualify for the price break as long as the machine has the bezel, which can cost between $150 and $250.

Spinella wouldn’t say how many Apriva-served machines qualify or reveal pricing details, but says the program cuts interchange by a penny to 1.5 cents on a transaction of $1 to $2. Apriva makes the program available to machine owners through its network of 500-plus merchant acquirers and independent sales organizations that distribute its services.

Visa’s intention with VIP, Spinella says, is to prepare the market for the day when newer technology replaces the traditional mag-stripe card. “It’s a hardware thing to have contactless so that down the road all of the financial institutions can get rid of the magnetic stripe,” he says. “They’re trying to prime the pump here.”

Machine owners still get the incentive through the end of the year even though both Visa and MasterCard Inc. last Saturday implemented new pricing for debit transactions under $15. Those new rates reflect the regulated debit interchange cap of 21 cents plus 0.05% of the sale for financial institutions with more than $10 billion in assets, as set by the Federal Reserve Board in implementing the Durbin Amendment.

For very small transactions, the new network rates convert the cap into a pricing floor. USA Technologies Inc., another processor of wireless payment transactions from vending machines, recently said the cost for accepting a debit card from a regulated bank for its average transaction of $1.67 could more than triple.

Apriva doesn’t know yet if Visa will renew the VIP in 2012, but says that it is talking with the network. “Visa has to figure out whether it’s accomplished its goal,” says Spinella. Visa declined to comment.

No matter what happens, Apriva says it has led its customers through “disruptive market changes” before and is ready to do so again. Part of that involves informing merchants about exactly what the new law entails and correcting misinformation, according to Spinella. “I still run across people today who don’t really know about the Durbin Amendment,” he says. “We’re trying to educate the merchant and we’re trying to educate the financial institutions about what the merchants are saying.”

Malvern, Pa.-based USA Technologies did not mention an interchange incentive in its recent public statements and an executive did not return a Digital Transactions News call for comment. The company, however, has struck deals with both Visa and MasterCard in the past that directly subsidized owners’ costs for installing its ePort readers that process mag-stripe and contactless card transactions from vending machines. In August 2010, for example, Visa and USA Technologies signed a three-year agreement under which Visa could pay the company up to $750,000 if it installs 50,000 more ePort or other terminals in vending machines. As of June, USA Technologies had already installed 33,000 units under the agreement, according to the company’s recently filed annual report for fiscal 2011.

In related Durbin Amendment news, the big merchant acquirer Heartland Payment Systems Inc. on Wednesday said that just from Oct. 1 to Oct. 3 it had passed on $1.78 million in interchange savings to its merchants. Restaurants received $671,652 of the savings. Princeton, N.J.-based Heartland uses the so-called interchange-plus pricing model and has said it would immediately pass the reduced costs from regulated interchange on big issuers’ cards to merchants. As the ones that directly pay interchange to card issuers, acquirers do have the opportunity to fatten their margins by not passing on to their merchant customers any or only some of the Durbin cuts.