PIN-Debit Rates are Still Rising

  Merchant concerns over rising interchange rates for PIN-debit purchases appear somewhat justified, according to a recent survey of electronic funds transfer networks by Cards&Payments sister publication ATM&Debit News. But not all merchant categories need to be concerned, the survey found.
  Most networks, after adopting tiered interchange rates to replace formats that used flat fees, are now tweaking their policies in competitive moves to attract new merchant categories. But the survey results also show a spike in PIN-debit rates that determine the fees merchant acquirers pay debit card issuers for the transaction, a trend some observers predict will continue.
  Most recently, the Houston-based Pulse EFT Association and the Johnston, Iowa-based Shazam network adopted tiered interchange structures, which reward higher-volume merchants with lower rates and fee caps.
  On June 1, Pulse implemented a four-tier rate system to replace its previous flat fee of 18 cents per transaction. The new structure has a top nonsupermarket rate of 0.65% of the purchase amount plus 10 cents for merchants with fewer than 500,000 monthly transactions. Merchants with 500,000 and 2 million monthly transactions pay 0.6% of a sale plus 10 cents with a cap of 60?, while merchants with more than 5 million monthly transactions pay 0.5% of a sale plus 6 cents, capped at 45 cents.
  The top supermarket interchange rate is a flat 21 cents per transaction for merchants with fewer than 500,000 monthly Pulse transactions. By comparison, supermarkets that handle more than 5 million monthly transactions pay a flat 13 cents per transaction.
  Shazam made similar changes that took effect April 1. While the network also adopted a tiered rate structure, it increased the cap on what merchants pay to 15 cents per transaction from 10 cents.
  'Competitive Move'
  Nonsupermarket merchants that handle fewer than 1 million monthly Shazam transactions now pay 15 cents per sale. The supermarket rate for merchants with fewer than 1 million monthly transactions is 10 cents per transaction. Effective Sept. 1, that fee will rise to 12 cents per transaction. All acquirers with more than 2.5 million monthly Shazam transactions will pay 8 cents.
  "This was a competitive move for us," says Richard Jenkins, senior vice president for Shazam, one of the few networks still owned by its financial-institution members.
  Pulse officials would not discuss their rate changes. But they previously said the network had to adapt to a rapidly changing interchange environment in which other leading networks are increasing their top rates and adopting tiered rate structures. Pulse is the fourth-largest EFT network, according to the 2005 edition of ATM&Debit News' EFT Data Book,
  The Montvale, N.J.-based NYCE network, Visa USA's Interlink network and First Data Corp.'s Star network all previously had hiked their interchange rate caps and adopted tiered-rate systems. In April, Interlink increased its top fee cap to 50 cents per transaction from 45 cents.
  NYCE President Steve Rathgaber says he believes PIN-debit interchange rates gradually will move closer to signature-debit rates, which today are at least double the cost of PIN-debit rates for many transaction types. "There will be a convergence," Rathgaber says of PIN-debt and signature-debit rates.
  Kevin Gregoire, executive vice president of product development at Brookfield, Wis.-based Fiserv Inc., which owns the Accel/Exchange EFT network, says such a convergence may be as much a result of a lowering of signature-debit rates as it is increases in PIN-debit rates. "They will converge, but how much one goes up and the other goes down is in dispute," he says.
  The Accel/Exchange network, after a major rate overhaul last year that increased its top rate, raised rates slightly in several categories this year. For example, for nonsupermarket merchants with more than $38 billion in annual sales, the fee cap increased to 30 cents per transaction from 25 cents as of July 1.
  Like other networks, Accel/Exchange is trying to lure quick-service restaurants into accepting PIN-debit transactions. QSRs are installing payment card readers, and PIN-debit networks are scrambling to attract these previously cash-and-carry businesses.
  Accel/Exchange changed its QSR fee from a flat 11 cents per transaction to 1.25% of a sale plus one cent, capped at 40 cents. Gregoire says QSRs will be paying less on purchases of less than $8 under the new rate scheme.
  Earlier this year, Star adopted a rate structure designed for QSRs. As of May 1, QSRs with fewer than 5 million monthly Star transactions began paying a cap of 60 cents per sale compared with the top fee of 45 cents per transaction for high-volume merchants.
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