MasterCard, following and reinforcing the message from its riva] Visa, has sent a clear signal to retail merchants and their banks: Get electronic.

In its annual announcement of interchange fees, which influences what merchants must pay to clear a credit card sale, MasterCard International left most of the rates unchanged. But the association also made it more difficult to qualify for some of the better rates without automation.

The latest schedule of fees, approved by the MasterCard board, takes effect next April. Interchange fees are a reimbursement for processing and fraud costs, paid on each transaction, by the merchant's bank to the card issuer's bank. The merchant's bank passes its cost on to the merchant.

Both MasterCard and Visa have been campaigning, through financial and other incentives, to increase the proportion of transactions that are authorized using electronic data bases.

"Our overall objective is to strengthen, using interchange requirements. our ability to combat fraud losses," said Daniel F. Fox. senior vice president of quality and systems at New York-based MasterCard.

Special Rate for Supermarkets

MasterCard said it is making one interchange adjustment - to the rate designed to encourage supermarkets to accept its cards. The new rate will be 1.1%, or $1.10 per $100 sale, up from 1%. Visa U.S.A. announced the same change earlier this year.

More important, MasterCard made it harder to qualify for the low rate or for the "Merit II" rate of $1.44 per $1 00, which is available for transactions cleared within three days.

Now a processor will have to be able to transmit the full contents of a card's magnetic stripe back to the issuer from the point of sale. That requirement previously applied only to the "Merit I" rate of $1.30 per $100, for transactions that clear in two days.

The Old-Fashioned Way

MasterCard's standard interchange rate, representing the cost of an old-fashioned, manual authorization procedure, s 2.18% plus 10 cents, or $2.28 on a $100 sale.

Earlier this year, Visa adopted a new incentive for retailers in its PS2000 program. It rewards merchant banks with a 1.25% rate if they can clear transactions within two days and transmit complete magnetic stripe information for authorization, among other automation requirements.

At the other end of the Visa rate schedule is the standard interchange rate of 2% plus 11 cents, or $2.11 for a $100 purchase.

Last month, San Mateo, Calif.-based Visa said merchants in the travel and entertainment sector and in the mail order business would also be eligible for customized PS2000 rates, starting next April.

Because of the somewhat higher risk of such transactions, the best rate generally available to these merchants will remain at $1.40 or $1.60 per $100, depending on whether a card is physically presented.

Higher Costs Initially

Although the objective of the MasterCard and Visa programs is to save money through efficiency and fraud control, bankers said the short-term effect will be higher costs. "Anytime you have major repricing, you have major upheaval and potential defections," said Jerry Lester, director of merchant processing at Michigan National Corp. He said merchant banks will have to upgrade systems to get the favorable rates and keep customers.

But while MasterCard and Visa continued to move toward automation, they did show some sensitivity to bankers' cost concerns.

In announcing its plan for an interchange compliance program last month, MasterCard said few costly equipment upgrades would be required of merchants or their banks.

And Visa granted the travel and mail order merchants the security of knowing that their new rates will be locked in through April 1997, removing the threat of additional upgrades.

"Everybody understands the investment and changes required for some people were significant," said Allen Weinstein, Visa vice president of industry research and interchange. "In exchange for that, we wanted to guarantee them the rate."

Mr. Lester credited Visa with making some adjustments that recognize the unusual business practices of some merchants that make it difficult for them to qualify for the best rate.

In one such step, Visa said hotels could get the best rate by clearing transactions two days after the cardholder checks out, rather than two days after the traveler presented a credit card at check-in.

This will allow many sales to qualify for the lower rate that previously were disqualified because a traveler stayed several days.

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