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Continued increases in Debit processing fees

Recent actions by the Card Associations have created a revenue problem for Independent Sales Organizations and companies that market electronic payment services. Visa's recent purchase of CyberSource and its Authorize.net payment gateways creates a problem for payment services companies. As Visa will drive out smaller players out of the marketplace.

Now that Visa is directly competing for revenue with Payment Networks, Acquirers and Banks the loser will be Consumers and Merchants. As competition is reduced and Visa leverages its brand, prices and consolidation will drive up costs. Already Visa is eating into debit processing revenues of Star, NYCE, and Pulse EFT.

MasterCard recently cut ATM ISO partner's revenues by two thirds. Any business taking that large a hit in revenue will not be happy. So far the current players in Decoupled Debit are Telecheck the ACH services company of First Data. Blackhawk Network's decoupled debit service has not received the Consumer Adoption they have hoped for. National Paymentcard Association of which I am a minority shareholder has gained some traction in the Fuel and C-Store sector. And Maverick Network Solutions in Deleware selling their "Private Debit" service. Has recently added Wilson Farms to their system.

Now that Pin Debit network pricing is closing the gap with Signature Debit rates. Merchants and Consumers need price relief. Only real competition for Merchant and Consumer's debit business is likely to spur innovation and drive down prices. The Merchants Payment Coalition and their lobbying efforts is giving K Street Lobbyists in Foggybottom aka. Washington D.C. more new clients. But it has as of yet failed to benefit Consumers with lower prices.

Notice of New Fees by Visa and MasterCard

These were fees announced earlier this year. That in the past were past through to Visa by Acquirers. These new fees flow directly to the Card Associations and have new names. We will see more of this since both Associations are now For profit Corporations with Investors to please.

Here is an excerpt from an update I received yesterday.

Sales Update

Re: NABU – (MasterCard) Network Access and Brand Usage Fee &

APF– (Visa) Acquirer Processing Fee

The Card Associations have recently announced the following processing fees:

Visa: Introduced a U.S. Acquirer Processing Fee (APF) of $0.0195 applicable on all Visa-branded authorizations. In response to this added fee, effective July 1, 2009, Sage will increase your office cost by the VS APF amount of $0.0195.

MasterCard: In April, MC introduced a per item cost of $0.0185, applicable to all transactions. In response to this added fee, effective August 1, 2009, Sage will increase your office cost by the MC fee of $0.0185.

Additionally, effective July 1, 2009, a $0.02 APF fee for VS will be applied to the merchant base. The MC NABU fee of $0.02 will be applied to the merchant base on August 1, 2009. For new business going forward, the T&C’s will updated to include $0.02 as a standard non-negotiable fee.

Are Debit Cards the Future?

In the Washington Post is an article on the changes now underway with respect to Debit and Credit cards. Unless you are completely ignorant of the fundamental change from Debt based payment Instruments to pay as you go mechanisms. It is interesting to see how the paradigm is changing in the US. Prepaid Cards, ACH Check Conversion, and RCK are examples of ACH payment solutions.

Excerpts:
A couple days ago, I got some pushback for arguing that the credit industry's tiered model amounted to a subsidization scheme: Credit card users who fall into debt get socked with fees and interest rates that in turn subsidize reward programs and low APRs for the credit users with a steadier cash flow.

In the recent past, I worked as a management consultant for some major credit card issuers. I can tell you that internally, these companies have a common term for customers who pay off their entire balance every month: “freeloaders”. These “freeloaders” aren’t necessarily unprofitable; some are, most aren’t, on average the group is mildly profitable, but not nearly as profitable as those who carry a balance. If you’re wondering how a “freeloading” customer can be unprofitable, there are several factors. For one, about 0.8% of the 2%-3% interchange fee goes to rewards, but a diligent customer can push that to 1.5% or more by optimizing the collection and redemption of rewards points. Beyond that, the credit card issuer finances everything the “freeloader” buys on the card for 15 to 45 days. Finally, there are the various expenses a customer costs: printing and mailing cards and statements, call center service, various card benefits, etc.[...] There are tradeoffs for everything. If hotels were banned from charging $8 for a minibar beer and $2/minute for phone calls and $25 for breakfast, the hotel chains would have to reevaluate their pricing structure. The result would probably be higher room rates and some closed hotels. If airlines had a price limit put on their business class seats, you can bet coach tickets would go up in price and the number of flights would go down.

Link to article here.
http://voices.washingtonpost.com/ezra-klein/2009/05/wre_debit_cards_the_future.html?hpid=news-col-blog

Kansas City Fed Chief promotes ACH Debit

An article on Digital Transaction News shows that the concept of Alternative to Card Association Debit is needed. With the recent changes in the Credit Card laws by President Obama and Congress. Those who in the past benefited from paying their balances on Time. Are now going to lose out to those who are not. This may drive many back to Checks, and Cash. Certainly with Rewards programs being reduced, and the perks being eliminated. Change is in the wind. It is time to evaluate how an alternative system might benefit, Merchants and Consumers.

Kansas City Fed Chief Espouses ACH for Debit Card Processing

(May 27, 2009) The Federal Reserve Banks should adapt the automated clearing house network to compete directly with private-sector networks for debit card processing, the head of the Federal Reserve Bank of Kansas City said this week. “The Federal Reserve could enhance competition in payment card markets by positioning ACH services as an alternative to debit card payment networks,” said Thomas R. Hoenig, president of the Kansas City Fed, in remarks delivered on Monday at a retail-banking conference held by the European Central Bank in Frankfurt, Germany.

Hoenig said he isn’t proposing the Fed issue cards or run its own card network. But he said the U.S. national banking regulator could “add enhancements” to the ACH that would allow the nearly ubiquitous network, which reaches virtually every bank in the U.S., “to become an alternative to running transactions over card networks.” He pointed to decoupled debit cards, in which banks issue debit cards that link to deposits held at other banks, as an example of the sort of adaptation he favors.

For the full article click link. Digital Transaction News is a great source for information on the payments Industry.

http://www.digitaltransactions.net/newsstory.cfm?newsid=2222

New Decoupled Debit provider

Payments news from GlennBrook Partners is reporting an ISO is doing a test of their Decoupled Debit Solution. The company is Maverick Network Solutions Inc. This company based in Delaware refers to their Decoupled Debit product as a Private Labeled Debit Card.

Teledraft the ACH processor in Scottsdale Arizona is also offering a similar service. That is currently being deployed through their Payday Loan clients. This shows that the concept is gaining traction. And that the Paradigm and domination of electronic payments by the Card Associations is beginning to give way to new mechanisms that offer electronic payment services minus the Interchange fees. The primary issues are Risk management, Collections, and Rewards or Loyalty Incentives.

Article in Digital Transaction News

The purpose for this blog is to promote ACH Debit or Decoupled Debit. It can be said that the reasons it is needed can only be articulated when you discuss the Topic of Interchange. The Interchange System business model runs contrary to normal Free Market Economics. In that the Card Brands Visa and MasterCard. Which were formerly Non Profit Corporations are now For Profit Corporations with Shareholders and Investors to make happy.

US Merchants pay twice as much as Canadians and three times as much as European Union merchants for a Debit or Credit Card transaction. The impact this is having is growing in severity to US Merchants. At a time when Merchants are facing severe financial pressures from declining revenues, increasing Taxes and Fees, and a tough credit market.

Visa's USA President recently disclosed the fact that nearly 70% of First Quarter US transactions were Debit. And that Debit volumes have exceeded Credit Card Volumes for the First time. With the Credit defaults hitting Card Portfolios hard. Advanta Financial announced they will be closing their Small Business Card Portfolio in June of this year.

Merchants need credit card and Interchange fee relief. Competition is the real answer to this need for a paradigm change. Alternative Payments offer Merchants and Consumers the first real hope for a change in the system.

Here is a recent artic le on the impact of Interchange fees. The passions that Merchants feel over this issue is not going away.

http://www.digitaltransactions.net/newsstory.cfm?newsid=2212