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Mr. Swanick got one thing right in his piece "So Where Are Those Post-Durbin Price Reductions for Consumers?" (Oct. 10): "No one likes price increases, especially when they appear suddenly and without apparent justification." Hidden, unjustified price increases are what the merchant community and our customers have been facing for years with the way big banks and card networks collude to set both credit and debit card interchange swipe fee prices.
October 18
It's not just
Operators of cashless vending machines and kiosks are scrambling to find relief from new debit-interchange rates, some of which are significantly higher than what they typically paid previously and may wipe out much of their profits, observers say.
"This is the first time in eight years Redbox has raised our daily DVD rental price," the company said on its website. "The price change is based on an increase in operating costs, including higher debit card fees that went into effect October 1."
Others, interviewed in early October, expressed the same frustration.
New Federal Reserve rules that limit debit interchange to 21 cents plus a few cents to cover fraud and other costs for large issuers could triple transaction costs for many in the cashless unattended payments sector, which consists primarily of small-ticket transactions, Dan Mathews, executive director of the Chicago-based National Automatic Merchandising Association, said.
"This is causing a lot of pain among our operators, who are flooding us with questions, and we don't know what to tell them," Mathews said.
Visa Inc., MasterCard Inc. and various payment-processing firms in late September said they would exercise a new interchange fee on small-ticket purchases, including those made in vending machines and kiosks where the vast majority of transactions are less than $2, industry observers said.
Under the new debit rates from both card networks, the vending machine operators' debit interchange rate applied to purchases initiated with cards from large issuers on Oct. 1 changed to 0.5% of the sale plus 22 cents from 1.55% plus 4 cents, according to USA Technologies Inc., one of the nation's largest cashless vending machine operators.
In that scenario, the transaction cost on a $2 transaction would be about 22 cents, compared with about 7 cents under the previous rate, the company said.
The discount rate, of which interchange is just a part, varies for cashless vending machine operators because of differences in acquiring banks and processors. But the vast majority of cashless vending machine operators will be affected by the new fees, Mathews said.
USA Technologies has been in discussions with Visa and with its payment processer about the new debit fees, David DeMedio, chief financial officer of the Malvern, Pa., said in early October. At the time, he said it is too early to predict what might emerge,
Some 83% of USA Technologies' cashless vending machine transactions are initiated with debit cards, and about 70% of those cards are from large banks that fall under the Fed's new debit interchange rates, he said.
Apriva LLC, a Scottsdale, Ariz., wireless-payments technology company that offers cashless-payment services to the vending industry, also has been negotiating with the payment card networks, financial institutions and processors to find a better approach to handling the new debit-interchange rates, Rinaldo Spinella, Apriva executive vice president for unattended payments, said early this month.
Spinella did not disclose the direction of Apriva's discussions with other card-industry players, but he noted that the privately held company continues to offer special transaction pricing to vending machine operators that adopt its contactless payment technology, as part of a program it established in 2009 with Visa.
Under that program, vending machine operators may continue to receive the older, lower debit-interchange pricing, although Spinella declined to specify that exact rate.
"Any operator that wants to add contactless payment technology through us can continue to take advantage of the prior standard debit interchange rate," he said, noting that its deal with Visa is set to continue through the end of this year.
MasterCard declined to comment specifically on how new debit interchange rates may affect vending machine operators, but a spokesperson said via email the company plans to operate within the debit interchange rates imposed by Congress and the Fed and will "continuously assess the evolving landscape." Visa declined to comment.
