PIN-Debit Fees are In Holding Pattern

  PIN-debit interchange rates have remained stable over the past year, though increases may be on the horizon. For now, some electronic funds transfer networks have tweaked rates in various merchant categories, a recent survey by Cards&Payments sister publication ATM&Debit News has found.
  On July 1, Johnston, Iowa-based Shazam increased the top rate paid by nonsupermarket acquirers to 24 cents per transaction from 15 cents for merchants that handle fewer than 1 million transactions per month. The network also increased to 16 cents from 12 cents the per-sale rate paid by supermarket acquirers whose merchant clients handle fewer than 1 million monthly transactions.
  By comparison, the Star network's top interchange rate is 60 cents per transaction for nonsupermarket merchants with fewer than 5 million monthly Star transactions.
  None of the top networks-Star, Interlink, NYCE and Pulse-increased their top interchange rates, which acquirers typically pay for the lowest-volume merchants.
  Still, contends Dan Kramer, Shazam senior vice president, interchange rates for PIN-debit transactions will rise in the coming years. "There is going to be a narrowing of interchange in the next several years," he says.
  Various industry studies have shown that the average PIN-debit interchange cost to a merchant is about 20 cents per transaction. That compares with an average cost of 40 cents per signature-debit transaction.
  Kramer says Shazam's 1,600 member financial institutions are under financial pressure to increase interchange revenue because of increases in debit card fraud for both signature- and PIN-debit activity.
  Such small issuers also face rising costs to maintain debit card portfolios. For example, CUNA Mutual, an insurance provider for credit unions, says it will drop clients' insurance coverage for card fraud if they do not use stricter fraud-detection systems.
  Merchants also have more electronic payment options to offer consumers, and interchange-rate increases can only go so far before merchants start steering consumers to less expensive forms of payment, Kramer notes. These trends could mean a decline in interchange margins for small issuers, he says.
  Mike Williams, senior vice president for Fiserv's Accel/Exchange network, whose clients include many small debit card issuers, notes that with a class of merchants suing Visa USA and MasterCard Worldwide over their credit card and signature-debit interchange rate-setting policies, networks are reluctant to adopt higher rates.
  Moreover, PIN-debit transaction volumes are growing quickly, by about 29% annually. That adds issuer revenue without spiking rates, says Williams. "It doesn't make sense with the lawsuit going on and with increases in PIN-debit volume" to increase rates, he says. "There is some amount of watch and wait and see what's going to happen with signature debit."
  A lack of rate increases may be keeping the networks "out of the cross hairs" of a merchant lawsuit, says K. Craig Wildfang, attorney for the Robbins Kaplan Miller & Ciresi law firm representing merchants in the class-action lawsuit.
  But PIN-debit networks are changing, and adding, rate categories to maximize PIN-debit use. Star, for example, has added a two-tiered "medical retailer" category for co-payments made in doctor's offices and medical clinics.
  Williams says creating special merchant categories is a way to attract acceptance of PIN debit among retailers that never before accepted the payment type.
  An Accel/Exchange issuer's council will meet this fall and likely create new rate structures for special merchant categories, says Williams. "I would not be surprised to see us doing more merchant segmentation," he says.
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