In June, the Fed announced final debit Interchange rules. Now we are starting to learn more about how Visa and MasterCard will approach the transaction routing provisions that ban exclusive affiliations between card networks and issuers of debit cards.
Under these new rules, debit card issuers must add at least one unaffiliated network to each debit card. For example, Visa has exclusive arrangements with issuers to use both its signature debit and PIN debit networks. Now debit card issuers will need to add an alternative network to Visa.
In response, Visa says they will implement a new Network Participation fee that will be based on a merchant's size and number of locations while at the same time lowering the variable rate charged per transaction. This Visa strategy is intended to encourage retailers from switching to other networks for debit card transaction processing and is a major change from Visa’s current per-transaction model.
MasterCard reports that they will not follow Visa’s new path. Instead, MasterCard wants to maintain flexibility to work with issuers, acquirers and merchants on a deal-by-deal approach in an effort to win more business under the new network routing rules.
The Fed exempted banks with assets under $10 billion from its mandated debit Interchange fee cap. And both Visa and MasterCard have committed to implementing a two-tiered debit Interchange fee to help protect small issuers. However, the affiliation and routing provisions apply to all issuers, regardless of asset size. For this reason, exempt debit issuers are being urged to limit the number of network choices to the minimum requirement of two networks.
Both Visa and MasterCard are expected to continue to pay card issuers and large merchants incentives to choose their brand and route transactions their way. Visa says it will also provide new promotions for retailers and banks.