EFT Sticker Shock

  Anything Wal-Mart Stores Inc. does naturally attracts a lot of attention. So when the world's largest retailer in early December made an example of MasterCard International by saying it would no longer accept MasterCard's signature-based debit cards, it was big news (See Card Watch, page 6). MasterCard earned the dubious honor of being the first card brand to have its debit cards rejected by a retailer that will continue to accept its credit cards. Visa and MasterCard now allow that under the new rules of the card-acceptance game arising out of the retailer class-action settlements last spring.
  Wal-Mart, which said MasterCard's debit cards are not worth the price it pays to accept them, will stop taking them Feb. 1, giving the association nearly two months to strike a deal. Wal-Mart can drop debit MasterCard without offending many customers because the card accounts for perhaps 1% of sales.
  Another new rule permits retailers to negotiate interchange with the card associations for the first time. Visa, whose check card has about 80% of the signature-debit market, is rumored to have cut some sort of deal with Wal-Mart, and Wal-Mart says that for now it will continue to accept the Visa product. No one will be surprised if MasterCard slashes its debit interchange rates even more than the one-third reduction that went into effect last August and is continuing in the new year. Wal-Mart is well-known for mercilessly pushing its suppliers to cut costs, and what are MasterCard and Visa to Wal-Mart except payment-services suppliers?
  Wal-Mart toying with the card associations, however, is taking the spotlight off of the regional electronic funds transfer networks. Under pressure from debit card issuers-the recipients of interchange-the EFT networks are raising point-of-sale debit interchange rates far in excess of the current inflation rate of about 1.5%. The networks are putting the previous kings of price hikes in a low-inflation age, colleges and medical providers, to shame.
  Case in point: Star, the nation's largest EFT network. Next month, Star will raise its maximums for interchange on nonsupermarket transactions by 32% to 75%. Star's acquiring members inevitably will pass these increases on to their merchant customers.
  Star, a unit of Concord EFS Inc., isn't alone. Last year, several other major EFT networks, including NYCE, Pulse and Accel/Exchange, increased POS debit interchange by double-digit amounts. Accel/Exchange raised its standard maximum from 18 cents to 31 cents per transaction, a jump of 72%. Pulse's basic rate went up to 18 cents from 15 cents, an increase of 20%. NYCE's standard supermarket rate went from 19 cents to 21.5 cents, an increase of 13%. Star, NYCE, and Accel/Exchange also created tiered systems that give the best prices to the highest-volume merchants.
  The PIN-debit price increases started about two years ago when Visa's national POS debit network, Interlink, tried to more than double rates but eased off when Wal-Mart and other retailers threatened to stop taking Interlink. I wonder when the retailers will start complaining about the regionals' price hikes.