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Visa's decision to increase its interchange rates for PIN debit transactions on its Interlink network may generate more revenue for the network's issuers but will also create more interest in competing non-bank networks catering to merchants, according to some observers. Visa yesterday released a four-page document to member banks outlining changes in interchange pricing for PIN and signature debit as well as new interchange and switch fees for ATM transactions on the Visa/Plus network. The new point-of-sale pricing takes effect April 1, with the ATM rates effective six months later. For its part, MasterCard International refuses to comment on Visa's announcement or indicate whether it plans pricing changes of its own. While the changes include sweeping reductions in check card fees for the retail and supermarket categories, those same merchants will pay more for Interlink transactions, which are secured by PINs. The check card is Visa's signature debit product. Under the new pricing structure, supermarkets will pay acquirers anywhere from 17 cents to 24 cents per transaction for Interlink, depending on their volume. The current fees are 16 cents to 22 cents. The standard retail rate structure for Interlink, which combines ad valorum with fixed fees, will range from a cap of 28 cents at the highest volume tier to one of 50 cents at the lowest. The current caps range from 22 cents to 45 cents. The new rate structure also adds a fourth volume tier at the low end in both the supermarket and standard categories, matching the number of tiers in the check-card interchange structure. Check card fees, meanwhile, will range from 0.62% plus 13 cents at the highest-volume stores to 1.03% plus 15 cents at the lowest. Currently, the range is 0.7% plus 15 cents to 1.05% plus 15 cents. On a $45 ticket, high-volume merchants will pay 41 cents, compared to 47 cents now. The higher rates for Interlink come in the wake of rate increases by regional electronic funds transfer networks, most recently NYCE, which this summer bumped its average interchange fee up 1.5 cents to 22 cents. In the memo to members, William Sheedy, executive vice president of bank card research and interchange strategy at Visa, points to NYCE's move as an example of the competitive pressure Visa faces in the PIN debit market. Indeed, the Interlink rate increase “is a continuation of the marketplace battle for issuers,” says Lee E. Manfred, a partner at First Annapolis Consulting, Linthicum, Md. “NYCE's increase leapfrogged the old Interlink pricing, which jeopardizes the business case for issuers to sign with Interlink.” Interlink has enjoyed substantial growth recently, in part because it has been able to attract major issuers from rival PIN networks. It has 87 million cards, up 17 million in a year, and is handling more than 300 million quarterly transactions, an increase of almost 50% from a year ago. The fee hike for Interlink, coupled with the decrease for signature debit, continues what many experts see as a trend toward a single debit product with only small differences in pricing, a trend that only accelerated after last year's settlement of the Wal-Mart case, which forced major cuts in signature-debit rates. Indeed, Sheedy in his memo refers to a “long-term strategy” at Visa to “manag[e] an increasing alignment between online and off-line fees where appropriate.” But Manfred also figures Visa is cutting its check card rates to placate merchants stung by the rate increase for Interlink. In the memo, Sheedy says the standard retail and supermarket categories control one-third of check card volume, and estimates merchants accepting both forms of debit will see no net increase while the “vast majority” of merchants not accepting PIN debit will enjoy a net decrease. Manfred warns, however, that this picture could change if PIN debit continues to grow faster than signature debit. “I have no reason not to believe [Visa's] assessment, but it's predicated on the current mix of PIN and signature,” he notes. Last year, PIN debit transaction volume grew 21%, compared to 20% for signature-based debit. Meanwhile, Debitman Card Inc., a non-bank network based in Chico, Calif., couldn't be more pleased by Visa's decision to raise Interlink rates. “That's terrific,” says John K. Lannan, chief executive of Debitman, which is recruiting merchants to accept and issue a PIN debit card that relies on the automated clearing house for settlement. “We continue to try to get merchants to realize the value proposition we offer.” Lannan says he expects Debitman to undergo accelerated expansion over the next 12 months, helped along by merchants disgruntled by rising interchange rates from competing PIN debit networks, now including Interlink. Debitman charges 15 cents per transaction, paying issuers anywhere from 6 cents to 9 cents, depending on volume. Processors and independent sales organizations earn 0.5 cents to 2 cents. In the document it sent to members yesterday, Visa also announced it will cut interchange fees to ATM owners in its Visa/Plus network in cases where machines offer fewer functions and have lower support costs. Transactions on higher-function machines will continue to receive current rates. In ATM networks, issuers pay interchange to ATM deployers. Visa is also cutting its switch fee for issuers that account for more than 250,000 transactions a month. The current fee, 5 cents, will range from 4.5 cents down to 1.75 cents at the highest volume. At volumes of 250,000 or less, however, issuers will pay anywhere from 5.5 cents to 6 cents.
