The Electronic Transaction Association wants to find a way for small merchants to have a voice in the bank card associations' setting of interchange prices.

At its annual meeting last week, the merchant processing trade group formed a committee designed to be a forum for merchants' views. It will call on the card associations to "articulate the rationale" for interchange rate increases, said Mary Dees of Paymentech Inc., the committee's chairwoman.

Visa U.S.A. and MasterCard International plan to raise most of their interchange rates-the percentage of a sale that the merchant's bank pays to the cardholder's bank-across most retail categories next month. These rates are the basis for the processing discounts that merchants pay banks to clear card transactions, and much of the retailing industry has been up in arms about the rising cost of interchange.

When rate hikes occur, "it's the small merchants whom nobody hears," said Ms. Dees, group executive for third-party processing at Paymentech, a Dallas processor controlled by Bank One Corp.

The committee is an attempt by independent sales organizations-agents that deliver processing services to smaller retailers-to "respond to their ma and pa merchants."

Four others will be on the committee: Stevan Berardo, executive vice president of sales, marketing, and product development at Vital Processing Services in Tempe, Ariz.; Randy Ridings, senior vice president of indirect sales at U.S. Bancorp of Minneapolis; Kurt Strawhacker, senior vice president of Atlanta-based First Data Corp.; and Charles M. Creamer, senior vice president of the Michigan Retailers Association in Lansing.

Mr. Creamer is also the new president of the Electronic Transaction Association, which consists of many independent sales organizations, or ISOs, as well as larger merchant processors.

Vital Processing Services is 50%-owned by Visa U.S.A., and U.S. Bancorp and Paymentech's parent company are represented on Visa's board.

Visa and MasterCard have set interchange rate hikes for April. The schedules they first announced were revised upward before they took effect.

Charles Burtzloff, president and chief executive officer of a big ISO, Cardservice International, said Visa and MasterCard are competing to please their member banks. One way to do that, he said, is to give them more interchange income.

"I understand (the associations) are trying to get market share," Mr. Burtzloff said. But "somebody is forgetting the person who pays for this."

Also raising hackles among merchant-acquirers has been the frequency of increases. Mr. Burtzloff said there have been four rate hikes in three years.

One message the committee will try to send to the bank card associations, he said, is, "Give us time to catch our breath" before raising rates again.

Mr. Burtzloff, a founder and former president of the transaction association, said the committee will mobilize the merchant community to lobby the associations' boards directly.

Linda S. Perry, senior vice president of market development and acceptance at Visa U.S.A., said her company would welcome the committee's input and be glad to play host to its members at the association's San Francisco headquarters.

But Ms. Perry said channels already exist for such communication and "I'm not sure what they want to accomplish." She said Visa holds annual meetings with merchants-150 attended one in Dallas last month. It also has annual meetings each May with acquirers and ISOs, Ms. Perry said.

She pointed out that, despite their protests, ISOs pass on a "pretty nice markup to merchants."

ISOs have made "lots of money," Ms. Perry said. "The fact that the industry is changing means that there is a viability for (bank) acquirers and ISOs in the business."

Along with price increases come new codes that merchants must use to get the best rates. Processors and ISOs are supposed to help merchant clients adapt their systems, which might involve software updates and changes in help desk procedures.

These updates are labor-intensive, Ms. Dees said; they are "a massive undertaking" that is "a challenge to explain to your Mr. Merchant."

Interchange "affects all the merchants who pay the salaries for those of us who are in the acquiring business and all the merchants who determine the value of our companies," said Nicholas Ferrante, former president of the transaction association and chief executive officer of American Heritage Bankcard, a PMT Services subsidiary in Chatsworth, Calif.

Armen Khachadourian, senior vice president of new market development at Visa U.S.A., said higher interchange rates are a necessary evil. He said rates had been kept artificially low for decades so that merchants would make the switch from paper to card-based transactions.

"It's always hard after you put something on sale to raise the price again," Mr. Khachadourian said.

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