This Time, Visa’s Interlink Hike Draws No Fire

Visa U.S.A.’s latest plan to increase the fees retailers pay for transactions processed on its PIN-debit network, Interlink, does not seem to be provoking the same angry merchant exodus that its last one did in October.

Then again, this time Visa seems to be offering a fair bit of price leeway to bigger merchants, who had been the most loudly disgruntled.

Visa had planned to raise Interlink’s merchant fees Oct. 13 but postponed after Wal-Mart Stores Inc., Walgreen Co., Publix Super Markets Inc., and other merchants vowed to stop accepting payments processed through the network. Visa’s current plan is to go ahead with the rate hike March 14 but offer a tiered payment structure based on sales volumes.

William Sheedy, the executive vice president of interchange for Visa U.S.A., said that, while the majority of merchants will be charged the published fees, “a select group of merchants that meet our volume-based criteria will qualify for lower interchange fees.”

He added: “The discussions with the merchants have thus far been positive. This restructuring of Interlink incorporates both the feedback we received from our member [banks] and the merchants. So we are confident we’ll be successful with Interlink with this interchange fee.”

Wal-Mart, for one, says it plans to hold on to Interlink because of the price adjustment. The other former dissidents said they have not made up their minds.

Walgreen says it is willing to listen to a Visa pitch, and Publix says it is keeping its options open.

Michael Polzin, a spokesman for Walgreen, said the Deerfield, Ill., company is “expecting a pricing decision from Visa in a few days. Based on that, we’ll make a decision on whether to carry it.” In all likelihood, Mr. Polzin said, Visa plans to present some type of discount to Walgreen so it will retain Interlink. “I would assume they wouldn’t present the same thing that they presented last October.”

In a Feb. 6 newsletter to merchants and acquiring banks, Visa said that on March 14 interchange will rise from a maximum of 20 cents to 45 cents for general transactions and from a flat fee of 15 cents to 22 cents for supermarket transactions. These are the same increases that Visa had planned to implement in October, before the large merchants rebelled.

But the memo also says there could be volume discounts for certain qualifying merchants, just as there are in other types of processing arrangements. It said it will use several criteria to evaluate whether a rate should be lowered, including the type of merchant, its sales volume, and its Interlink transaction volume.

The company said it “will withhold a portion of the issuer interchange reimbursement fees from Visa consumer check card transactions occurring at qualifying merchants to help fund debit-marketing initiatives,” and added that a future memo will clarify what portion this might be.

Lloyd Constantine, a principal at the New York law firm Constantine & Partners and lead counsel in the retailers’ class-action lawsuit against Visa and MasterCard over debit interchange fees, said that the fees stated in the memo are “the list price that only some people pay. That’s sort of a phantom price.”

He added: “It’s my strong belief that a minority of the transactions will pay these posted rates. A majority of the transactions will pay significantly lower rates.”

Mr. Constantine said that Visa has probably been going to its major merchant clients and cutting deals for fees lower than the stated schedule.

But he said he believed the real purpose of the posted increase was to force the regional electronic funds transfer networks to raise their interchange fees to be more competitive with Visa’s offline, or signature-based, debit fees.

If that is the idea, it appears to be having some success. One of Visa’s biggest rivals in PIN-debit processing, Concord EFS Corp., which owns Star Systems, the largest EFT network in the United States, says it will raise its interchange fees March 1 in response to Visa’s Interlink fee hikes. The decision has not changed since Visa said it would increase its postponed fees this March.

Star’s new fees will be a maximum of 34 cents per transaction for general transactions and a flat fee of 19 cents per transaction for grocery stores. Concord executives said last year that the changes were a direct response to Visa’s Interlink plans.

Kelly Presta, a vice president at Visa U.S.A., said in a prepared statement that the fee increases will be Interlink’s first in two years.

“Interlink’s interchange reimbursement fees are cost-based fees to balance the costs between the issuing and acquiring financial institutions, and are adjusted according to market conditions,” Mr. Presta said.

Some observers say the changes will not have much of an impact. “The truth of the matter is, the retailers are not going to be pleased by any price increases in the cost of acquiring and transaction fees,” said Scott Strumello, an associate at the Auriemma Consulting Group, a card industry research firm in Westbury, N.Y.

Nonetheless, Mr. Strumello said, the regional electronic funds transfer networks’ massive consolidation has loosened the card associations’ grip on debit transaction processing.

“The ability for Visa and MasterCard to go in and dictate pricing is not what it used to be,” he said. “My opinion is Visa can go ahead and implement this, but I’m not convinced that retailers are going to suffer.”