In an examiner.com article yesterday titled “Merchant service providers are the real winners under new debit fee caps”, Michael Conticelli highlights that processors are not required to pass on the lower Fed regulated debit Interchange rates – and because of this small businesses are not realizing the benefits of this legislation.

Thanks Michael for helping call attention to this small business issue. Ever since this debit Interchange debate started we have been advocating for small businesses because we knew that while they were held up as the face of this legislation by mega retailer lobbyist, that the system was rigged against them.

In October 2011 when the Fed debit rules went into effect, we posted "Durbin’s Debit a Trick or Treat for Small Merchants". Michael writes “Some banks and processors have tried to trick their business customers into thinking they are getting the savings passed on by lowering rates at only a fraction of the full savings.” To avoid the tricks, Michael advises “The only way a business can be sure you are getting ALL of the savings passed through is through the Interchange pass through pricing model.”

Two years before, in October 2009, Vantage wrote More Intelligent Merchant Rates, calling for all merchants to move to Interchange pass through pricing. The bottom line we posted “is that while the lawyers, lobbyist and politicians earn their living arguing over Interchange, merchants should take more immediate action on the things they can control today. Shop smart and choose your payment partner wisely.” In fact, since 2005, Vantage has monitored, recorded and reported on Interchange changes impacting merchants. All merchants, large and small, can get Interchange pass through pricing. And Vantage is passing all the Regulated Debit savings on to our clients (and released a study of the results by industry).

To receive a customized merchant Interchange rate quote instantly delivered to your inbox go to http://merchantrates.com.

Visa changes the signature vs. PIN debit debate with policies to support contactless payments. 

In an interview in the June/July 2009 issue of Cards&Payments magazine, Ellen Richey, global head of enterprise risk for Visa, discussed the adoption of chip technology to make purchases more secure. Richey said “the U.S is not going to be adopting a chip-and-PIN credit card or debit card any time in the very near future” suggesting that in the U.S., the deployment of a contactless-chip card network may not include a PIN component.

In October 2009, Best Buy announced that it would discontinue it’s acceptance of Visa contactless payment cards. Why?  Best Buy reportedly took issue that Visa contactless lacked the option of PIN acceptance, while payment industry analyst pointed to the controversy of Visa allegedly pushing signature-based transactions over PIN transactions in an effort to generate higher Interchange fees.

In an interesting twist, Visa announced that signature debit and Interlink PIN debit rates will both change starting April 2010 – they will be priced the same.  Additionally, Visa is set to expand its small ticket Interchange (on transactions <$15) as well as extend its No Signature Required (NSR) program (on transactions <$25) to most merchants. 

This certainly is an effective strategy for changing the debate on steering purchases to and from signature debit or PIN debit.  And if Visa’s strategy to deal with security and global interoperability issues is for the U.S. to adopt contactless-chip technology, then eliminating price differences between signature and PIN debit will also alleviate the need for contactless to have a PIN option (Best Buy’s concern).

Many were already predicting 2010 to be a breakout year for contactless payments (from contactless stickers to NFC enabled phones).  With these Visa developments, merchants may want to consider adding contactless card readers over PIN pads at their point of sale.

Visa has announced additional changes for April 2010.  Visa will adjust the following U.S. Visa Debit Interchange reimbursement fees.  The significance here is that for many merchants the underlying Interchange costs for accepting a Visa signature debit (check card) will be the same as accepting a PIN debit transaction. 

Visa Signature Debit

Fee Program
Current Fee
April 2010 Fee

CPS Retail Debit
1.03% + $0.15
 0.95% + $0.20

CPS Supermarket Debit
1.03% + $0.15 ($0.35 max)
0.95% + $0.20 ($0.35 max)

CPS Service Station Debit
0.70% + $0.17 ($0.95 max)
0.75% + $0.17 ($0.95 max)

CPS Automated Fuel Dispenser Debit
0.70% + $0.17 ($0.95 max)
0.75% + $0.17 ($0.95 max)

Interlink PIN Debit

Visa has announced changes in the pricing for Interlink debit transactions.

Fee Program
Current Fee
April 2010 Fee

Interlink Standard— IV
0.75% + $0.17
 0.95% + $0.20

Interlink Supermarket—Performance Threshold IV
$0.25
0.95% + $0.20 ($0.35 max)

Interlink Standard—Fuel
0.70% + $0.17 ($0.95 max)
0.75% + $0.17 ($0.95 max)

Interlink Quasi Cash
1.80% + $0.10
2.30% + $0.10

If there are no price incentives for merchants to accept PIN (and staring in July 2010 "No Signature Required” <$25 for most). what will they do?  Will merchants continue to invest in PIN pads, encryption upgrades, maintenance, etc.?  Will merchants continue to ask their customers… “credit” or “debit” at the points of sale?  

What do you think?

For more Interchange announcements visit http://www.vantagecard.com/price/interchange05.html.

NYCE and CU24 PIN debit networks have announced modifications to the current rates. 

Effective February 1, 2010 NYCE will implement the following changes:

• The switch fee will be decreased from $0.05 to $0.0425.

• Retail merchants will be billed at 0.75% + $0.2125 per transaction. The minimum transaction fee will be decreased to $0.3025.

• Quick Service Restaurant merchants will be billed at 0.55% + $0.1075 per transaction with a maximum fee of $0.5425. The minimum transaction fee will be decreased to $0.2275.

• Supermarket merchants will be decreased to $0.3025.

• Petroleum merchants will be billed at 0.85% + $0.1925 per transaction. The minimum transaction fee will be decreased to $0.3025.

• Returns will be decreased to $0.0425 per transaction.

• PINless Utility merchants will be billed at $0.6550 per transaction.

• PINless Cable merchants will continue to be assessed 1.00% + $0.125 per transaction. The maximum transaction fee will be increased to $1.055.

In addition, Effective April 1, 2010:

• NYCE will implement a Premier Issuer fee of $0.011 per transaction. This will be an addition to the existing interchange fees.

Effective February 1, 2010 CU24 will implement the following changes:

• The switch fee will be increased from $0.025 to $0.028.

• Retail merchants will be billed at 0.75% + $0.178 per transaction with a maximum fee of $0.828.

• Quick Service Restaurant merchants will be billed at 1.25% + $0.058 per transaction with a maximum fee of $0.478.

• Supermarket merchants will now be billed $0.258 per transaction.

• Drug Store and Pharmacy merchants will be billed at 0.75% + $0.178 per transaction with a maximum fee of $0.828.

• Petroleum merchants will be billed at 0.75% + $0.168 per transaction with a maximum fee of $0.728.

• Returns will now be billed $0.028 per transaction.

Visa and MasterCard set a mandate effective July 1, 2010 to ensure that all installed PIN pads are using the most up to date triple data encryption standard (3DES) for processing PIN debit transactions.  In an effort to enforce this mandate, fines were slated to be imposed on those deemed out of compliance.  While technically, the July 2010 deadline is still in place, the threat of punishment has been pushed back.  The new policy isn’t threatening fines until Aug. 1, 2012, however Vantage will continue working with our clients to ensure compliance by July 2010.

The most interesting part of the article as reported on StorefrontBacktalk was that several of the nation's largest chains were threatening to abruptly cut off PIN debit at the deadline, possibly switching to signature debit to temporarily sidestep the issue.  One organization that had been pushing the change, the National Association of Convenience Stores (NACS), said their analysis of card costs has shown that signature debit (check card) is now the same cost as PIN debit but without the cost of having to upgrade PIN pads. 

As we discuss back in a June 2008 blog post, PIN Debit Requires Analysis, its not just automatic that a PIN transaction is less expensive that a check card transaction.  It really depends on the sale transaction size.  The larger the transaction the greater the possible savings from PIN but there is a breakeven and PIN can cost more on low dollar sales, especially when considering PIN pad hardware, encryption, maintenance, staff training and financial statement reconciliation.   We also discussed the trend of rising cost of PIN acceptance.  Back then when Interlink, the largest PIN debit network, removed the max fee caps, we predicted that it would put further pressure on all networks to follow suit to remain competitive.

Gray Taylor, payments consultant to NACS, said “We are concerned that PIN debit interchange—which has risen an average of 15 percent on a compounded basis since 1996—will price itself out of our market, and shift significant transaction share to Visa and MasterCard while eliminating access to new payment card concepts that bring competition to the card payment market. Of course, if the Maestro PIN debit interchange hike—78 percent—is any indication, EFT networks will price themselves out of our market without the TDES mandate.”

Effective April 4, 2008, Interlink and Pulse PIN networks dropped the max calculation from their fees for retail merchants. PIN debit has been a low cost alternative to signature debit (check cards) specifically on high ticket items. The primary reason was that the PIN networks capped the costs (ex. $0.65 max). PIN network "Interchange" has continued to increase to compete with signature debit (remember Interchange is paid to the issuers and issuers prefer to issue and promote cards that pay more when used). PIN networks continue to publish more complex Interchange charts with more categories based on type of industry.

While networks like Star continue to have max fee caps in place, the recent removal by Interlink, the largest PIN debit network, will put further pressure on all networks to follow suit to remain competitive. Sales reps that are telling retail merchants that they will offer a "flat transaction fee" or "0% rate" on debit may no longer be able to price merchants this way without marking up rates and fees elsewhere to cover the pricing risk. Keep an eye on the competition in your area and make sure you understand PIN debit pricing.