MasterCard De-Links Debit Rates From Credit Card Rates

  With the demise of the honor-all-cards rules, merchants on Jan. 1 will be able to choose whether to accept Visa's and MasterCard's offline debit cards. But most observers say that merchants generally will continue to accept the plastic, namely Visa check cards and debit MasterCards.
  "The merchants have the option to accept the Visa debit card," says Elizabeth Buse, Visa executive vice president. "(But) they certainly are not going to turn down 133 million cards."
  The associations' settlements with retailers, though, already are causing MasterCard to take action to keep debit MasterCard attractive to merchants relative to its credit cards. As it promised to do in April when it agreed to settle, MasterCard in June announced it will lower the interchange rates for debit MasterCard transactions by one-third, effective Aug. 1.
  Both Visa, which also is reducing its check card interchange rates, and MasterCard formally signed a final settlement agreement with the merchants June 5. U.S. District Judge John Gleeson is expected to rule on the settlements in September. Visa and MasterCard have yet to announce what their offline debit rates will be after Jan. 1.
  In announcing its temporary rate changes, MasterCard also said it would de-link its debit interchange rates from its credit card rates, a move not required by the settlement of the merchant class action. In addition to lowering the rates applied to debit MasterCard purchases, MasterCard's board voted to increase its credit and corporate card interchange rates.
  The new rate for most nonsupermarket, cardholder-present debit MasterCard transactions will be 0.97% of the sale plus 10 cents, down from the current rate of 1.4% of the sale plus 10 cents. The debit MasterCard rates for all other merchant categories also will decline by one-third.
  MasterCard's consumer credit card and corporate card interchange rates will increase by about 1%, or an estimated 2 basis points, according to MasterCard's announcement. So for a $100 credit card transaction, if a merchant paid 1.4% of the sale plus 10 cents before, on Aug. 1 it will pay 1.42% plus 10 cents.
  One source told CCM sister publication ATM&Debit News the new credit rate is an attempt to make up for lost debit card revenues from the lowered offline debit MasterCard rates among members that also issue credit cards. A MasterCard spokesperson says that the credit card rate changes were made to clearly separate its credit and debit card rates.
  Ruth Ann Marshall, president of MasterCard North America, says MasterCard's new credit card rates also are designed to make the association's credit card products more competitive with Visa's rates to attract issuer members.
  "Our U.S. board has authorized us to address what would have been a competitive disadvantage," Marshall says of the old rates.
  Before the move, MasterCard did not differentiate its credit and offline debit transactions to qualify for the same "Merit" category rate. "If a debit card or credit card qualified for Merit, it qualified for the same rate," says the spokesperson. The credit card rate increase, although relatively small, ends that blending. Visa moved to increase some of its credit rates last January.
  The Visa check card interchange rate will be lowered by 29% from the current rate of 1.25% of the sale plus 10 cents for most nonsupermarket cardholder-present transactions. Under Visa's settlement agreement, the rate Aug. 1 will become 0.88% of the sale plus 10 cents, with the decline.
  Lloyd Constantine, the lead attorney in the merchant lawsuit, says the final settlement will save merchants about $1 billion in lower fees in the last five months of this year.