As merchants combat high interchange fees by increasing debit penetration, the debit networks are quietly increasing their fees at the same time. Interlink is the latest debit network to announce an increase.

For tier 4 merchants, the rate goes from 75 basis points and $.17 per transaction to 95 basis points and $.20, There is no cap on the percentage fee charged. That’s $.0095 times the transaction amount plus the per item fee. Compare this to the debit interchange cost of 1.03% and $.10 per transaction and it’s obvious the numbers are getting closer.

Merchants will need to weigh cost and risk to make decisions about pushing pin debit. With pin debit, all risk is removed from the merchant for chargebacks.

New rates are effective April 16, 2010.

San Francisco - Nov. 19, 2009 “Visa appreciates Congress’ desire to better understand the electronic payments industry and welcomes the release of this second Government Accountability Office (GAO) study on interchange and the electronic payments industry. We are pleased that for the second time in two years, the GAO has seen no need to call for Congressional intervention to regulate interchange.

“Not surprisingly, the GAO reached many of the same conclusions found in its previous report, including:

• Merchants benefit from electronic payments through increased sales, faster checkout times, as well as greater convenience.
• Consumers benefit from the convenience of electronic payments over cash and checks, providing improved theft and loss prevention, and easy record keeping.
• Interchange is important to community banks and credit unions, providing them with the ability to offer card programs and benefits on par with major financial institutions.

“We are encouraged that the GAO report examines consumer impacts and confirms that there is little evidence merchants would pass any potential savings from lower interchange on to consumers.

“We believe the study would have benefited from a more comprehensive analysis of debit given the fact that debit cards account for approximately 70% of Visa transactions in the United States and are among the fastest growing payment products.

“It’s unfortunate that the report doesn’t highlight that Visa’s average interchange rates in the United States have remained generally flat for the last ten years and, more broadly, merchant discount rates overall have declined in the last four years, according to the Nilson report.

“We believe it is important for U.S. policymakers to read this report to better understand how vital interchange is to keeping the electronic payments system reliable, convenient and secure for all participants.  We also hope these findings provide some balance to the efforts by some large retailers and their trade associations who are trying to get Congress to help them increase their profits at the expense of consumers.

“For over 50 years, retailers have received tremendous value from accepting electronic payments, including guaranteed payment, potential for increased sales, faster checkout times, as well as greater convenience and security - all at a fair price.  For these benefits, Visa’s interchange rates average 1.62 percent for each transaction and has remained generally steady for a decade.”

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Pin-less debit comes from online debit transactions that are processed via EFT networks ie STAR, PULSE etc.

In traditional retail if the merchant is maximizing the low cost debit networks, the consumer buys a product in the store and enters their pin number. The merchant is charged a flat fee. If the consumer does not enter their pin number and they sign, the merchant pays a percentage of the transaction.

Pin-less debit is the online solution to the retail pin-entered transaction. The merchant gets the benefit of the flat rate transaction, however the consumer does not enter their pin number because it is usually an Electronic Funds Transfer or Ecommerce transaction.

See also How can I get pinless debit?