Visa’s Big PIN-Debit Rate Hike Further Closes Gap with Signature Debit

The gap in acceptance costs between PIN-based and signature debit, once wide, continues to narrow, payments executives say. The trend is most apparent in the new interchange schedules for Visa Inc.’s Interlink electronic funds transfer network and the signature-based Visa check card. A number of Interlink rates are rising by percentages ranging from the teens to 40%, while Visa left most check card rates unchanged.

Interlink and its EFT competitors that offer PIN-based point-of-sale debit are attempting to attract debit card issuers through higher interchange, which is set by the network, charged to the merchant acquirer, and paid to the issuer. The networks concluded several years ago that their pricing was far enough below interchange assessed by Visa and MasterCard Inc. for signature-based debit that they could safely raise rates, as noted last September by this newsletter’s sister publication, Digital Transactions magazine.

That trend has not run its course, according to a story in the magazine’s upcoming June issue. “That gap will continue to narrow,” says Steve Karp, senior vice president for Enterprise Payments Strategy at SunTrust Banks Inc.

Atlanta-based SunTrust recently announced that it would switch the EFT mark on its 5 million debit cards from Interlink to First Data Corp.’s Star network. The change came about not just because of Star’s interchange rates, but also because SunTrust liked what it saw in Star’s security systems and other technology, and its strategies. “It comes down a confluence of vision and innovation for the future, and corporate commitment for the future,” he says. “And then lastly, who’s got an economic model for all the members of the network.”

While Karp wouldn’t discuss pricing, the switch implies SunTrust will earn interchange revenues through Star fairly comparable to those that it would have generated had it stayed with Interlink. SunTrust earlier announced it would switch its entire signature debit card portfolio from Visa to MasterCard and would introduce MasterCard credit cards into its all-Visa credit portfolio (Digital Transactions News, Jan. 14).

Visa posts its credit and debit card interchange schedules on its Web site. The new Interlink rates effective in April show that on a $40 debit card sale, supermarkets will be paying 18% to 40% more in interchange, depending on the volume tier for which they qualify, than they were paying under the preceding schedule posted last October.
Volume-based rates for other retailers are up 15% to 23% for a $40 sale. At gas pumps, Visa signature-debit and Interlink rates are the same.

Visa’s April interchange schedule for consumer debit cards leaves Visa check card pricing largely the same as it was last October, except for some small increases for gas stations and low-volume retailers. The new schedules also show that Visa raised the transaction and dollar-volume thresholds merchants must clear to get the most favorable pricing for both Interlink and signature debit.

A Visa spokesperson says by e-mail that Visa’s net systemwide interchange rate has “remained consistent at about 1.63% [of the sale], the same level it has been the last 10 years.” She adds that, “Visa modified its debit interchange rates to help us remain competitive, as well as drive further participation and innovation in the Visa network. However, most of Visa’s U.S. debit rates did not change.” Visa in July will expand its no-signature program to most face-to-face U.S. transactions of $25 or less without merchants incurring added chargeback risk, the spokesperson further notes.