ISOs and acquirers will have work to do because of the Federal Reserve Board’s impending regulations that will set policy for establishing “reasonable and proportional” debit card interchange rates, panelists at the Western States Acquirers Association conference in San Diego told attendees last week.
Much of that work will center on how to manage the merchant relationship, especially with smaller merchants, they agreed.
Larger merchants have the funds and technology to take advantage of potentially lower rates, but smaller merchants generally do not. As such, they may turn to their ISOs and acquirers for assistance, said panelist Greg Cohen, president of the U.S. arm of Canada-based Moneris Solutions.
Potentially More Rate Tables
That assistance may create an opportunity to develop transaction-routing software to help merchants secure the lowest rates and increase the potential to sell more PIN pads, he said.
The legislation also permits merchants to set a minimum for credit card purchases of no more than $10. Some merchants will take advantage of this provision, but Cohen doubts that larger merchants, such as Wal-Mart Stores Inc. or Target Corp., will compel consumers to spend more to use their credit cards.
But many small merchants may not be aware of the debit-interchange regulation brought about by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Fed is scheduled to issue a proposed rule before the end of the year. If unabated, the rule would take effect in July.
Small merchants generally are “oblivious” to the legislation and what it might mean for them, Cohen said. Even for those that are aware are waiting before deciding what to do, he says.
The new rules also could result in more interchange-rate tables because issuers with less than $10 billion in assets are exempt. So ISOs and acquirers will have to distinguish card transactions by issuers’ size, and that will create more work for them, Cohen says.
New interchange tables will create work for ISOs and acquirers who issue merchant account statements, Cohen says. Room will have to be found on paper statements.
Merchant acquirers also will have to contend with a recent U.S. Department of Justice settlement reached with Visa Inc. and MasterCard Worldwide, said Holli Hart Targan, an attorney at Jaffe Raitt Heuer & Weiss and president of the Electronic Transactions Association, a Washington, D.C.-based group representing the acquiring industry.
Justice Served
The DOJ filed suit against the companies, include American Express Co., to thwart payment- network rules that prohibit so-called merchant steering, in which merchants steer consumers toward using less-expensive payment methods.
AmEx did not join the settlement and has vowed to fight the lawsuit.
The settlement will affect the entire merchant-acquiring industry, in part because of the rapidity with which changes have to be made to accommodate it, Targan said.
Quick Moves
Within five days of the U.S. District Court for the Eastern District of New York’s finalizing the settlement, Visa and MasterCard have to change their operating rules and create a notification proposal to send to merchants. Once this is done, the two card brands will have 30 days to notify merchants.
Once in place, the new operating rules will enable merchants to suggest less-costly forms of payments to consumers, inform consumers about the cost of accepting credit and debit cards, and offer consumers a discount or rebate for using a particular card network, Justice said.
Once the proposed settlement has been published in the Federal Register, a 60-day public comment period follows. The court then rules on the final settlement.
All of the changes may at least produce one positive aspect, Targan said. The attentiveness ISOs and acquirers pay to the impending rate adjustments also may prepare them for any additional changes, noted Targan.
“Our industry has always flown under the radar screen, but that is no longer the reality,” Targan said.
