SAN FRANCISCO — Breaking with previous practice and signaling its new commitment to more transparency, Visa USA has gone public with its interchange schedule that took effect on April 14.
"Visa constantly evaluates the marketplace to determine interchange rates. A number of factors are assessed when reviewing interchange, including the specific product, the value provided to the merchant, the type of merchant business, how a transaction is processed, the risk associated with a transaction, the rates associated with competitive and substitute payment products, and other elements," said Rhonda Bentz, vice president with Visa USA. "Revenue from interchange helps to sustain the many stakeholder services provided by Visa's member financial institutions," Bentz added.
In previous years the card brand has generally kept its interchange schedules strictly confidential to its members, and Bentz acknowledged the shift in policy reflects a new direction toward being more open about a topic that has grown in importance.
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System wide, the new effective interchange rate is 1.77%, up from last year's 1.76% the card brand said.
But the notion of a system wide or "effective" interchange rate is somewhat meaningless, however, since there are a wide variety of different categories of transaction, cards and retailers that have an impact on how much a given retailer might pay for each transaction.
For example, under the April 14 schedule, a debit transaction at a high-volume supermarket will run 0.62% of the transaction price, plus a standard $0.13 per transaction. But Visa caps the overall interchange fee for debit transactions at $0.35.
But a transaction at a high-volume supermarket using a regular Visa credit card will cost the retailer 1.15% of the transaction plus $0.05 per transaction and a Visa Signature card transaction will cost 1.65% of the transaction plus $0.10. The most expensive card, from the retailer's point of view, is the Visa Signature Preferred card which costs retailers 2.20% of the transaction plus $0.10, and this does not even begin to discuss the differences between the types of transaction (card not present, electronic, etc.).
A Visa source explained that Visa charges more interchange for certain cards, such as the Visa Signature, because the brand had statistics which indicated that cardholders with those cards were significantly more likely to make large dollar transactions and thus worth more to the merchant. Certain types of transactions were more expensively priced because of the increased risk they represented to the brand and the issuing institution, the source added.
The source, which Visa would not allow to be named, also explained that the interchange schedule did not include the rates which the brand might charge retailers who fail to comply with card security standards by the end of September of this year.
At Visa's security summit in February, Visa CEO John Coughlin announced that past a certain point this year the card brand would only make its most favorable interchange rates available to high-volume merchants who could document that they had updated their card security standards.
The source said that rather than add onto the schedule, Visa would move firms within tiers, so that interchange rates might increase 25% for merchants who failed to upgrade their data security systems to comply with industry standards. –[email protected]
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