MasterCard Conducts a Maestro Rate Increase

  MasterCard International is building up some financial muscle on Maestro, its personal identification number-based point-of-sale debit brand. Through several interchange rate increases disclosed in late March, the association hopes to entice more MasterCard members to issue the Maestro card.
  As with credit and offline (signature-based) debit cards, Maestro issuers are paid interchange by merchant acquirers, who pass the expense on to their retailer clients.
  The current Maestro interchange rate of a flat 9.5 cents per transaction will change July 1, when four categories will take effect (chart). Grocery stores, supermarkets and warehouse clubs will pay a flat 17 cents per transaction. Convenience stores, specialty stores, vending machines, gas stations with or without ancillary services, automated fuel dispensers, fast-food restaurants and movie theaters will pay 0.75% of the sale, from a minimum of 11 cents to a maximum of 25 cents per transaction.
  All other merchant categories will pay 0.5% of the sale plus 7 cents, or a minimum 11 cents to a maximum 29 cents per transaction. MasterCard also established a 0% rate for the cash-back portion of a transaction.
  Maestro is a major payment card in some countries, but in the U.S., MasterCard traditionally has positioned Maestro as a brand of last resort so debit card holders could use their cards when traveling outside their home electronic funds transfer network's regional footprint.
  As of the end of 2002, there were 38 million Maestro cards issued in the U.S. that could be used at 2.1 million payment terminals domestically. MasterCard typically does not reveal Maestro transaction totals, but an executive last spring said there were 1.2 million Maestro transactions in the U.S. in March 2002, ranking Maestro 11th among the nation's PIN-based POS debit networks.
  The new rates put Maestro's rates closer to those of other leading POS debit brands, including Star, NYCE and Visa U.S.A.'s Interlink. For Star and NYCE transactions, most merchants pay 0.55% of the sale plus 12 cents, capped at 34 cents, while supermarkets pay a flat 19 cents. Interlink issuers receive 0.65% of the sale plus 12 cents, capped at 45 cents. They receive a flat 22 cents for supermarket purchases. All three networks offer high-volume merchant acquirers significant rate discounts.
  Despite the new incentives for U.S. issuers, it could take some time for the obscure Maestro to build market share. Les Riedl, executive vice president at the Atlanta-based Speer & Associates consultancy, notes that merchants are required to route transactions through their local regional-network switches to comply with the networks' priority-routing rules.
  "Maestro is still a brand of last resort from a routing-rules standpoint," he says. "Only if you can't route through the regional network can you route through the association's network."
  But that nationwide network may be what convinces some issuers to give Maestro a try, says Riedl.