Complaints from some big banking companies contributed to Visa U.S.A.'s postponement of its Interlink fee hike.
The Oct. 13 increases could have cost them significant transaction fee income - and ultimately, customers. Several major merchants, including Wal-Mart Stores Inc. of Bentonville, Ark., and Walgreen Co. of Deerfield, Ill., had threatened to drop the PIN-debit card when the hike took effect.
One banking company that complained was Fifth Third Bancorp. of Cincinnati. "A number of our merchant customers expressed their concern to us," said Barry Boerstler, an executive vice president with Fifth Third. "We communicated with Visa on our customers' behalf to make those concerns known. It appears that Visa's delayed implementation of the new fee structure signals their willingness to address these concerns."
Bank of America Corp. also complained, according to a source. But Brad Russell, a spokesman for Charlotte, N.C., company, said that the fee hike had been under discussion between Wal-Mart and Visa, and that his company had not been involved in those talks.
Bank of America arguably had the most to lose from the fee increase. It had just dropped its main national electronic funds transfer network, Star, and therefore would seem to have been the bank likeliest to suffer from big merchant defections.
But Mr. Russell said Bank of America customers would not have been significantly affected, because they could "still use the debit check card and sign, for it rather than using the PIN."
Merchants need not accept Interlink cards in order to accept other Visa cards. Under Visa bylaws, merchants that accept one card bearing the Visa brand must accept all others with the brand. (Retailers are challenging this rule in a class action against Visa and MasterCard International over debit fees on their offline, or signature-based, debit cards.) But Visa does not consider Interlink cards to be Visa-brand cards.
When Visa announced Oct. 5 that it would delay the fee hike until March 1, merchants were quick to react. Wal-Mart and Walgreen both announced that they would continue accepting Interlink until then.
Visa would not discuss the banking companies' pressure to delay the increase. In announcing the postponement it cited concerns including the approach of the holiday season and the "deteriorating" economy. "System changes as well as cardholder and merchant communications could not be completed on the accelerated schedule originally envisioned," the card association said.
It also said it "wanted additional time to resolve concerns with a few merchants."
Tom Williams, a Wal-Mart spokesman, said its announcement early last month that it would drop Interlink was a response to Visa's "unilateral, 125% increase in transaction fees."
Now "there's no reason to not accept the Interlink debit card," Mr. Williams said, but Wal-Mart will drop the payment option if and when the increase goes into effect.
Visa has not publicly stated how much the increase would be, but industry sources said Interlink fees would jump from 20 cents per transaction to as high as 45 cents. The supermarket flat fee is expected to vault from 15 cents to 22 cents.
Michael Polzin, a spokesman for Walgreen, the largest drugstore chain in the United States, said it would continue to accept Interlink until the fees were increased.
The postponement " does not change our position at all," Mr. Polzin said. "It just delays the date we're going to drop it."
Visa had offered both Wal-Mart and Walgreen millions of dollars to keep them from flying the coop, but the two giant merchants said that accepting the offer would not have been in their customers' interest.
Stan Paur, the president and chief executive officer of the Houston-based Pulse EFT Association, said the merchants' reaction "among other things clearly created concerns in the minds of some financial institutions that the Interlink changes were in fact too aggressive, and the resultant effect would be significant operational and customer service problems."
In response to the fee-hike plan, banking companies asked other electronic funds transfer networks, including Pulse and Jeannie, if they could process the transactions that merchants now send through Interlink. Those that called Pulse "were running out of time," Mr. Paur said.
Banks could face an even bigger problem than the loss of Interlink fees, he said. "The ultimate danger is that the merchant community will decide to create its own payment infrastructure."
Lloyd Constantine of Constantine & Partners, the merchants' lead attorney in their class action against the card associations, said Visa will probably still try to increase the fees.
"I don't think it's dead in the water," he said. "Visa has shown an incredible ability to repackage bad ideas."
Visa will not cancel the increase altogether unless a jury forces it to do so, Mr. Constantine said. Visa's and MasterCard's bank members will then see that "these associations have not acted in the best interests of their members," he said.
