VISA Announces It Will Extend Lower Interchange Rates

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Visa USA said last week it will extend the lower interchange rates enacted after last summer's massive merchant antitrust settlement into next year.

The rates, lowered by a third Aug. 1, have cost credit unions millions of dollars in lost interchange fees, mostly for signature-based debit transactions which make up two-thirds of all debit transactions for the typical credit union (CU Journal, Nov. 17).

"As a result of the retailers' settlement, Visa agreed to a temporary reduction in Visa online debit interchange through the end of 2003," said Daniel Tarman, vice president of Visa USA, in a statement. "Since that time, Visa has been in positive, ongoing discussions with acquirers and their merchants regarding the value of continued Visa debit acceptance."

"As of Jan. 1, 2004 current VISA interchange rates will not change, allowing VISA to continue to assess the rates with the objective of maximizing the value for consumers, merchants and member financial institutions," Tarman said.

Officials with MasterCard International, which also reduced its fees by a third Aug. 1, would not comment on their rate structure for next year, but industry sources said they expect MasterCard to follow VISA's lead and retain the lower fees.

VISA's interchange rate for check cards such as its "Check-IT," "Plastic Check," and "Check Card," products that are popular with credit unions, is 1.23% of the sale, or 49 cents on a typical $40 purchase across all consumer categories. Before Aug. 1 the typical rate was 1.25% plus 10 cents, or 60 cents per $40 sale. Supermarkets pay a flat 26 cents per transaction, down from 40 cents previously.

The current debit MasterCard rate is 0.97% of the sale plus 10 cents, or 48.8 cents per $40, down from 1.4% plus 10 cents, or 66 cents per $40. Supermarkets pay a flat 29 cents, down from 48 cents before the Aug. 1 rate reduction.

Under the terms of the merchants' settlement, VISA agreed to pay merchants $2 billion and MasterCard agreed to pay $1 billion and to allow merchants to negotiate their own individual deals beginning in January. In addition, merchants for the first time will be able to stop accepting VISA check (debit) cards and debit MasterCards if they take the card associations' credit cards beginning the first of the year.

MasterCard's Position

MasterCard said last week the $1-billion settlement caused it to report a $319-million loss for the first three quarters of the year. The credit card company said it booked $721 million of the payment in the second quarter, even though it plans to pay $125,000 of the settlement this year and then $100,000 increments through 2012. For its fiscal third quarter ended Sept. 30 MasterCard reported a 10% rise in revenues to $594.2 million, but a 4% decline in net income to $74.4 million, or 74 cents a share, from $77.9 million, or 78 cents a share, for the third quarter last year.

Visa, which is privately held by banks, does not publicly disclose its financials.

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