Visa U.S.A. Inc. is overhauling its interchange fees for PIN and signature debit transactions to make pricing more consistent across the two categories and to better compete with rival network operators.
Beginning in April, fees for retail and supermarket purchases processed on Visa's Interlink PIN debit network will rise as much as 45%. Merchants' fees will decrease roughly 13% for purchases made with signature debit instead of a PIN. (Retail and supermarket purchases account for more than a third of Visa's signature debit volume.)
In a six-page memo sent to member banks Tuesday, the San Francisco association also said it plans to change its pricing for ATM transactions. Starting in October, operators of more expensive ATMs that offer more services to consumers will be rewarded with higher payments.
But Visa also plans to vary its fees for ATM transaction processing, depending on volume. Fees for companies that conduct more than 250,000 transactions a month will drop, while those conducting fewer transactions will pay more.
The new top fee will be 6 cents per transaction, and a Visa spokeswoman said it expects net fees for ATM transactions to rise 10%.
The memo, signed by William Sheedy, Visa's executive vice president of bank card research and interchange strategy, said the changes "are consistent with Visa's longer-term strategy of managing an increasing alignment between online and offline fees where appropriate."
The changes will affect more than a third of Visa signature debit volume, he said.
Visa last changed its signature debit interchange fees in January; it last hiked PIN debit rates in 2002.
From August 2003 through December, Visa and MasterCard International were required to cut their debit card rates by about a third as part of their settlements of the Wal-Mart suit.
In January, Visa modified its signature debit pricing, for the most part cutting rates from pre-settlement levels. It also introduced four tiers of debit pricing, giving big merchants better pricing than small ones. Merchants that handled over 35 million transactions representing $2 billion of annual sales got the lowest prices of all.
Visa had first used such tiers on the PIN debit side.
Another factor in the changes announced Tuesday was the increase in online debit prices by Metavante Corp.'s NYCE network.
"Recent developments in the marketplace, including the increasing number of merchants that accept both Interlink and Visa debit products, underscores the need to even more comprehensively manage interchange reimbursement fees within both categories," Mr. Sheedy wrote.
In an interview Tuesday, he said interchange would drop the most for those merchants that did not have PIN pads. But he also said the net effect of higher PIN rates and lower signature rates would be an overall drop in interchange costs even for some merchants that use PIN debit heavily.
"Because of the tiers, some tiers of merchants will see a greater decline," Mr. Sheedy said. "The majority will see a decline in interchange in April."
Though he predicted that merchants "will respond favorably" to the changes, some merchants have complained at recent industry conferences about the increasing fees they must pay to accept cards.
For those that operate complex ATMs, the fee for cash withdrawals (the most common consumer ATM use) will stay at 50 cents. Deployers of simpler ATMs will get just 40 cents per withdrawal from Visa.
"This should be viewed as an incentive to deploy more fully functioning machines, which should be a benefit to those institutions," Mr. Sheedy said. "Any modifications to interchange that better align fees in the marketplace with the value being provided to consumers is a good change."
Even after the changes, Visa debit transactions will remain substantially cheaper than equivalent credit card transactions.
A signature debit retail purchase would cost a top-tier merchant around 75 cents, compared with around $1.53 for a purchase made with a credit card or around 28 cents for a purchase made with a PIN debit card.
