The electronic funds transfer network Pulse EFT Association has become the latest debit card processor to say it will raise its interchange rate.
The Houston company said last week that starting Oct. 1 it will charge merchant-acquirers 18 cents for each PIN-based debit card transaction that the network handles. It had raised the price to 15 cents from 10 cents last year.
A Pulse executive said the change was not made because of the result of the settlements in the Wal-Mart lawsuit, which will drive down interchange rates for signature-based debit transactions - a type that Pulse does not handle - come Aug. 1. Rather, she said, the new price is a more accurate reflection of the network's processing expenses.
"We take into account various things, cost studies, as well as the competition, but basically it's a cost base price," said Cindy Ballard, an executive vice president of Pulse.
In the Wal-Mart settlements Visa U.S.A. and MasterCard agreed with a class of the nation's merchants to lower by one-third the prices they charge for signature-based debit transactions. Banks that issue debit cards say this will translate into lower revenue for them. Some banks looking to recoup some of that lost revenue appear to be looking to PIN debit to make up some of the difference, so a higher price charged by Pulse or one of its rival networks will be a help.
One such rival, the NYCE Corp. subsidiary of First Data Corp., increased its interchange on PIN debit transactions July 1.
Star Systems, which is owned by Concord EFS Inc., nor Shazam Inc., an independent network with strength in the Midwest, say they do not plan to raise interchange.
Despite lower rates on signature-based debit and higher rates from NYCE and Pulse on PIN-based debit, signature-based interchange rates will be higher for merchants than PIN-based rates.
Even with the 18-cent fee, Pulse still will not cover its bank members' expenses for providing PIN debit, Ms. Ballard said. "We believe it's getting closer to covering the costs, but it's not there yet," she said. "We try to balance the needs of the issuers and acquirers, to provide a compelling return of the issuers, while trying to minimize the cost to the acquirers."
While Pulse's published interchange fees are lower than those of some other networks, those networks' published fees often vary from reality, because the networks give "sweet deals" to certain merchants or merchant segments, Ms. Ballard said. She did not name any particular network.
Barbara Span, a spokeswoman for Star, the largest EFT network in the country, said that in instances where the network offers lower interchange it is because that industry has very low average purchase tickets.
For example, Star charges 12.5 cents interchange to quick-serve restaurants. But that is because the average ticket cost is below $10 at those establishments. Additionally, fast food is a predominantly cash-based business.
"Before, the financial institutions weren't deriving any revenue from that industry," Ms. Span said. "We've created a whole new avenue of revenue for the financial institutions."
NYCE's interchange went from a maximum fee of 34 cents to 40 cents (it varies by type of retailer and annual gross sales). It also raised supermarkets' interchange - it will go from a flat 19 cents to 21.5 cents.
Star last increased its interchange fees Jan. 1, adopting a complex percentage structure based on volume and industry segment - a maximum of 20 cents to 34 cents for most merchants and 12.5 cents to 19 cents for grocery stores, depending on size. Its previous fees were a maximum of 34 cents per transaction for general transactions and a flat fee of 19 cents per transaction for grocery stores.
Shazam last raised its interchange Sept 1, 2001, to 10 cents for online debit transactions and 7 cents for supermarkets.
