MasterCard interchange rates rise. What does that mean?

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MasterCard recently released announced their Interchange costs effective as of April 2011. The subject of Interchange has been a hot topic ever since Debit Card fees were brought into the crosshairs of the Wall Street Reform Act. Interchange, for those that don’t know, is not paid to MasterCard, nor to the acquiring bank that grants a business the ability to accept payment. It is paid to the banks that issue the cards. For instance if a customer makes a purchase with their Wells Fargo MasterCard, the Interchange fees are directed to Wells Fargo. Pretty snazzy huh?

The new Interchange structure will not necessarily affect all businesses since there are hundreds of cost levels and only some have changed. The system is not easily interpreted, nor easy to break down. The new pricing chart alone is 144 pages. (Download April 2011 MasterCard Interchange Chart). We fell asleep on page 4, so fortunately our friends at the Green Sheet clued us in. The increases worth mentioning are on the World Merit III category and apparently “World Merit III can be 20 to 30 percent of a retail merchant’s MasterCard transactions.” It will rise from 1.73% + $0.10 to 1.77% + $0.10.

Other changes include:

  • World Full UCAF (the rate for a world card e-commerce credit transaction conducted with merchant security and cardholder verification) will increase from 1.83% + $0.10 to 1.87% + $0.10.
  • World Merchant UCAF (the rate for a world card e-commerce credit transaction conducted with merchant security only) increased from 1.73% + $0.10 to 1.77% + $0.10.
  • The Supermarket Base and Enhanced Supermarket Base rates will increase from 1.48% + $0.05 to 1.48% + $0.10.

Is this payback for the Wall Street Reform Act or a direct result of it? Hardly, in fact this is a normally scheduled increase. Visa and MasterCard typically make updates on a semi-annual basis. According to MasterCard, Interchange pricing is determined in the following way:

“MasterCard interchange rates are established by MasterCard, and are generally paid by acquirers to card issuers on purchase transactions conducted on MasterCard cards. Interchange rates are only one of many cost components included in a MDR, and are a necessary and efficient method by which MasterCard maintains a strong and vibrant payments network. Setting interchange rates is a challenging proposition that involves an extremely delicate balance. If interchange rates are set too high, such that they lead to disproportionately high MDRs, merchants’ desire and demand for MasterCard acceptance will drop. If interchange rates are set too low, card issuers’ willingness to issue and promote MasterCard cards will drop, as will consumer demand for such cards. In response to these competitive forces, we strive to maximize the value of the MasterCard system (including the dollars spent on MasterCard cards, the number and types of cards in circulation, and the number and types of merchants accepting MasterCard cards) by setting default interchange rates at levels that balance the benefits and costs to both cardholders and merchants.”

Accepting card payments may seem expensive but how much less would customers spend if they only had the cash in their pocket? Probably a lot less. The Interchange fees pay for themselves and it’s up to the business owner to find the most reliable, cost effective acquirer. Good luck!

– deBanked

Last modified: February 21, 2013
Sean Murray

Category: Merchant Processing, MPR Authored

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