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Important MasterCard and Visa Interchange Updates

May 2008 Update

Effective May 1, 2008, the Pulse Debit Network will implement several changes to its pricing structure including the addition of a new Network Security Fee of 0.01% and establish a new category for Petroleum merchants.

April 2008 Interchange Overview

Visa and MasterCard have announced Interchange modifications to become effective April 2008.

Visa
Visa is implementing an International Service Assessment (ISA) fee on U.S. acquired transactions when the issuer country is foreign for both international purchase and cash advance transactions except on a U.S. military base, embassy or consulate.

Visa will modify Visa Signature Preferred card Interchange for Card Not Present (CNP), Retail and Corporate Electronic charge types as well are certain credit voucher rates.

Changes to the No Signature Required Program (US issued card transactions less than $25), which provides chargeback protection on eligible transactions for fraudulent transactions in a card present environment, is being expanded to include Supermarket Credit and Debit plus:

• hardware stores
• dairy product stores
• gift, card novelty and souvenir shops
• variety stores
• candy, nut and confection stores
• bakeries
• book stores

PIN Debit
Visa will implement changes to Interlink Supermarket and Interlink Standard rates.

Effective April 1, 2008, the following debit networks will modify their price structures as follows:

• Alaska Option will increase their transaction fee to $0.26 per transaction.
• Jeanie Debit Network will increase retail transactions to $0.20 + 0.75% per transaction, Quick Service Restaurant transactions to $0.17 per transaction, and Supermarket transactions to $0.28 per transaction.

MasterCard
MasterCard is enhancing systems to recognize Puerto Rico and other U.S. territories so transactions between merchants and cardholders will not longer be subject to cross border fees.

In an effort to penetrate growing market segments, MasterCard is introducing new incentive Interchange rates, including Core, Enhanced, World, World Elite and Debit Interchange, to apply to Insurance and Real Estate merchant categories.

To further growth in the Bill Payment market segment, MasterCard is reducing the Interchange rates associated with most consumer credit Utility transactions. Core, Enhanced and World Utilities Interchange will decrease by $0.10 and Debit Utilities will drop by $0.30.

MasterCard is requiring that Vehicle Rental transactions being submitted for Commercial T&E Rate III must include the Rental Rate with their current addendum detail.

MasterCard is requiring that transactions qualifying for Commercial Data Rate II and Commercial Face-to-Face Interchange programs include a non-zero tax amount that is within a range of 1% to 30% of the transaction amount, unless the transaction is presented as 'tax exempt' or as 'tax not collected'. Vantage will populate a 'tax exempt' indictor when tax amount is equal to zero to safe guard against potential downgrades.

Discover
Effective April 4th, Discover is reducing the timeliness for all Prime Submission Level programs by 1 day. Timeliness refers to the number of days from when a transaction is processed until it is submitted through Interchange to Discover (most industries set at 2 days). Your best practice is to settle daily.

Also effective April 4th, Discover is increasing Supermarket rates by +0.05%, decreasing Debit Express Services Interchange by -0.05%, increasing Debit Petroleum by +0.02% and Commercial Electronic by +0.04%.

January & February 2008 Overview

MasterCard
MasterCard has announced increases to their cross border assessment for each transaction acquired in the US for non-US issued cards processed. Effective January 2008, this fee will increase to 0.30% (30 basis points) for transactions settled in U.S. dollars.

Also effective January 1, 2008, MasterCard will increase its Acquirer Program Support Fee which is assessed on International Interchange categories. Merchants accepting International cards may notice a slight increase in the effective costs of Interchange of 0.15% (15 basis points), however, these categories will continue to be price lower than domestic card Interchange.

PIN Debit
Debit networks, Shazam and ACCEL, have announced changes. Effective January 1, 2008, Shazam will add Quick Service Restaurant (QSR), Small Ticket Retailer, Petroleum, Retail Max, QSR Max charge types and increase Retail and Grocery transactions. Effective February 29, 2008, ACCEL debit network will increase their Retail Max, Grocery, QSR and QSR max fees.

Fall 2007 Overview

Visa and MasterCard have announced several Interchange, and compliance changes including expansion of existing products, new Interchange programs, rate changes to existing Interchange programs and modifications to qualification logic.

Visa
Visa is expanding its CPS Small Ticket program to include transactions processed from unattended terminals. Visa is also expanding their Utility program to include Business Card transactions. Visa is updating MCC 7841 from Video Tape Rental stores to DVD/Video Rental. Visa will begin to enforce the Card-Level value is included with transactions.

MasterCard
MasterCard is breaking out Level II and Face-to-Face commercial transactions for Business Card, Purchasing Card, Fleet & Petroleum categories. Corporate Standard, Data Rate II and Face-to-Face rates will increase for Commercial, World, World Elite, World Corporate, and World Elite Corporate. Data Rate III Interchange for these categories will decrease.

MasterCard Cross Border Assessment Fee Changes effective January 1, 2008, the cross border transaction assessments are being increased from .10% to .30%. This card type / charge type accommodates transactions where the acquirer settles the transaction using the merchant’s currency code. For US merchants settling in US$, then we expect this to be the impact to your pricing.

Spring 2007 Overview

The following is a recap of the modifications to the Card Association Interchange programs for spring 2007.

Visa
Visa will introduce three additional interchange rates within the commercial card products structure: Business-to-Business (B2B), Retail and Card Not Present (CNP). While all three are within the commercial card rate structure, these rates will vary dependant upon they type of card (Purchasing, Business or Corporate). Interchange qualification for transactions from T&E merchants remains unchanged and T&E merchants are not eligible for any of the new rates; transactions from T&E merchants remain eligible for Commercial Electronic and Commercial Standard rates. Visa is also adjusting existing commercial card rates and introducing Visa Commercial Signature Preferred Interchange. All transactions must comply with applicable qualification and processing requirements.

Business-to-Business: Transactions eligible for the B2B rate must be CPS qualified (not qualifying for Level 2 rates) and be processed by merchants operating in qualified Merchant Category Codes (MCCs). Transactions with the qualifying MCCs can be face-to-face or accepted in a card not present environment. Visa considered many factors when selecting the eligible MCCs including, but not limited to, fostering growth in under-penetrated market segments and providing a lower rate for merchants in these categories as they tend to have higher degrees of commercial spending versus consumer spending. Visa will review MCC eligibility periodically to ensure that the appropriate categories are targeted and aligned with the goals of increasing Visa acceptance and fostering growth in Visa volume. The eligible MCCs are:

780 Landscaping and Horticultural Services
1799 Special Trade Contractors – Not Elsewhere Classified
2741 Miscellaneous Publishing and Printing
2791 Type Setting, Plate Making and Related Services
2842 Specialty Cleaning, Polishing and Sanitation Preparations
4214 Motor Freight Carriers and Trucking – Local & Long Distance, Moving & Storage Companies & Local Delivery Services
5021 Office and Commercial Furniture
5039 Construction Materials – Not Elsewhere Classified
5044 Photographic, Photocopy, Microfilm Equipment and Supplies
5046 Commercial Equipment – Not Elsewhere Classified
5047 Medical, Dental, Ophthalmic and Hospital Equipment & Supplies
5051 Metal Service Centers and Offices
5065 Electrical Parts and Equipment
5074 Plumbing and Heating Equipment and Supplies
5085 Industrial Supplies – Not Elsewhere Classified
5099 Durable Goods – Default – Not Elsewhere Classified
5131 Piece Goods, Notions and Other Dry Goods
5137 Men's, Women's and Children's Uniforms & Commercial Clothing
5139 Commercial Footwear
5169 Chemicals and Allied Products – Not Elsewhere Classified
5192 Books, Periodicals and Newspapers
5193 Florist Supplies, Nursery Stock and Flowers
5198 Paints, Varnishes and Supplies
5199 Nondurable Goods – Not Elsewhere Classified
6300 Insurance Sales, Underwriting and Premiums
7311 Advertising Services
7333 Commercial Photography, Art and Graphics
7349 Cleaning, Maintenance and Janitorial Services
7361 Employment Agencies and Temporary Help Services
7372 Computer Programming, Data Processing and Integrated Systems Design Services
7375 Information Retrieval Services
7379 Computer Maintenance, Repair and Services – Not Elsewhere Classified
7392 Management, Consulting and Public Relations Services
7399 Business Services – Not Elsewhere Classified
7829 Motion Picture and Video Tape Production and Distribution
8734 Testing Laboratories (Non-Medical Testing)
8931 Accounting, Auditing and Bookkeeping Services
8999 Professional Services – Not Elsewhere Classified

Retail: Transactions eligible for the Retail rate must be CPS qualified (not qualifying for Level 2 rates), from merchants operating in Non-T&E MCCs and occur in a face-to-face swiped card environment.

Card Not Present (CNP): Transactions eligible for the Card Not Present rate must be CPS qualified (not qualifying for Level 2 rates), from merchants operating in non-T&E MCCs and occur in a non face-to-face keyed card environment.

Please note that if transactions eligible for the new B2B, Retail or CNP fail CPS qualification, the best rate they can qualify for is Commercial Electronic. Interchange qualification for transactions from T&E merchants remains unchanged and T&E merchants are not eligible for any of the new rates; transactions from T&E merchants remain eligible for Commercial Electronic and Commercial Standard rates. Visa Purchasing Large Ticket and GSA Large Ticket interchange rates remain unchanged as a result of these enhancements.

Visa Purchasing, Corporate and Business Interchange qualification best to worst:

Visa Purchasing Cards
•  Level 3 (CPS, Level 2, Level 3 data)
•  Level 2 (CPS, Level 2 data)
•  CNP, Retail, B2B (CPS data)
•  Purchasing Electronic (failed CPS)
•  Commercial Standard (exceeds timeliness)

Visa Corporate Cards
•  Level 3 (not eligible)
•  Level 2 (CPS, Level 2 data)
•  CNP, Retail, B2B (CPS data)
•  Corporate Electronic (failed CPS)
•  Commercial Standard (exceeds timeliness)

Visa Business Cards
•  Level 3 (not eligible)
•  Level 2 (CPS, Level 2 data)
•  CNP, Retail, B2B (CPS data)
•  Business Electronic (failed CPS)
•  Commercial Standard (exceeds timeliness)

MasterCard
In addition to pricing changes that will take effect in April 2007 and in June 2007, MasterCard is also introducing additional segmentation of its product suite in both the Consumer and Commercial card arenas.

Core Value and Enhanced Value Interchange
The MasterCard Enhanced Value platform applies to consumer credit cards that meet minimum rewards value requirements for cardholders. Consumer credit cards that do not meet minimum rewards value requirements will be recognized as consumer credit Core Value products and will be eligible to qualify for reduced interchange rates.

Each of the previously existing consumer credit card categories will now have rates associated with both a Core Value and Enhanced Value card. In April 2007, the interchange rates will be identical for these two products with few changes to the current pricing structure. You will also note that both Core Value and Enhanced Value pricing will change in June 2007 for eight of the categories listed. In addition, a Petroleum rate program is being introduced for both segments.

Consumer Credit World Interchange
MasterCard will be modifying interchange in April 2007 for several categories that fall under the Consumer Credit World Interchange programs as well as adding a Petroleum rate program in the Consumer Credit World Interchange Program.

Consumer Credit World Elite Interchange
This category was introduced by MasterCard in October 2006 with a rate structure identical to the existing World MasterCard rates. Effective in April 2007, changes will be made to eleven of the categories and a Petroleum rate program will be added to this segment.

Consumer Debit Interchange
MasterCard has elected to maintain all existing U.S. region Debit MasterCard interchange rate levels. Both of the existing Petroleum rate programs will now also have a maximum fee of $.95 in keeping with the newly introduced Petroleum rate programs in other segments. PIN Debit interchange will also remain unchanged at this time.

Commercial Interchange
MasterCard has also elected to maintain all existing commercial card interchange rates. In order to expand acceptance of Large Ticket transactions, two new Commercial Large Ticket rates will be introduced in April 2007.

In addition to the above mentioned changes to Commercial Interchange, MasterCard is also introducing the following commercial card programs: World MasterCard for Business, Corporate World MasterCard, and World Elite MasterCard for Business and MasterCard Corporate World Elite. Corporate World and Corporate World Elite rate programs will mirror Commercial Card rates but Business World and Business World Elite will have a separate rate structure.

Taxi and Petroleum Interchange
Also effective in April 2007, MasterCard is adding MCC 4121 (Limousines and Taxicabs) to the Consumer Credit Core Value, Enhanced Value, World and World Elite Convenience Purchases interchange rate programs for transactions that are less than or equal to $25.00.

MCC 5541 (Service Stations with or without ancillary services) and MCC 5542 (Fuel Dispenser, Automated) are being removed from the Consumer Credit, World and World Elite Convenience Purchases and Merit 3 interchange purchases but can now qualify for the new Consumer Credit Core Value, Enhanced Value, World and World Elite Petroleum interchange rates.

Please contact your Relationship Manager if you have any questions regarding these updates.

Fall 2006 Overview

MasterCard and Visa have announced several changes that will go into effect on October 13th, 2006. While most of these changes will not impact our merchants directly, they include new interchange programs and updates to existing interchange programs.

Visa
Visa recently announced that they would provide access to Interchange rates for merchants. Visa Interchange rates are now publicly available on their web site at www.visa.com/merchant. As discussed on this site, Interchange is a major component of your discount rate pricing.

MasterCard
MasterCard has defined a Zero Interchange Program under MasterCard's Business Service Arrangement. We would anticipate the need to use the zero interchange logic in the event of an exceptional circumstance that would warrant an immediate adjustment to merchant level fees, such as a natural disaster. To support this program, we will be adding a Zero Interchange Program Flag and will house a Zero Interchange Start Date and a Zero Interchange End Date. These dates will define the period of time for which interchange fees would not be applied to the eligible merchant.

MasterCard will be implementing Interchange fee programs and rates to support the launch of their new World Elite MasterCard program, which offers affluent cardholders enhanced services and rewards. While Interchange rates on the new World Elite programs currently mirror the existing MasterCard World Card programs.

MasterCard is introducing three new Interchange programs specifically for Utility merchants: Consumer Credit, World Utilities and World Elite Utilities. Eligible merchants must register with MasterCard to participate in this program. Transactions that meet qualification requirements will be assessed at a reduced Interchange fee.

MasterCard is changing how they recognize Puerto Rico, specifically when assigning the Cross-Border fee (established in April 2006). Puerto Rico is currently recognized as part of the U.S. region. Effective October, 2006, MasterCard will recognize Puerto Rico as part of the Latin America and Caribbean region. This change affects U.S. merchants accepting Puerto Rico-issued MasterCard credit cards.

MasterCard will require that U.S. merchants processing mail order / telephone order or recurring billing transaction include a customer service telephone number.

MasterCard is expanding its Small Ticket Interchange program to include seven additional merchant categories: Bus Lines, Tolls & Bridge Fees, News Stands, Laundries, Dry Cleaners, Quick Copy / Reproduction Services and Car Washes. This update will align the MasterCard Small Ticket program eligibility with Visa's Small Ticket program.

Spring 2006 Overview

Visa
Visa is making several modifications to Small Ticket programs. The changes include expansion of MCCs eligible for Visa CPS Small Ticket Interchange rates, reduction on the CPS Small Ticket Debit Interchange rate and introduction of a No Signature Required program.

Visa is extending the existing CPS small Ticket Interchange, also known as Small Ticket Payment Service, to seven additional merchant category codes (MCCs). New additional eligible MCCs include Bus Lines, Tolls & Bridge Fees, Newsstands, Laundries, Dry Cleaners, Quick Copy & Reproduction Service and Car Washes. Transaction qualification criteria have not been modified and requirements to meet the category are the same as today (current eligible MCCs include Local Commuter Transport, Taxicabs & Limousines, Restaurants, Fast Food, Auto Parking Lots & Garages, Motion Picture Theaters and Video Tape Rental Stores.

Visa is introducing a new Visa No Signature Required program, which eliminates the signature requirement on qualified transactions under $25 to seventeen merchant categories. The program applies to face-to-face, swiped transactions and intends to provide protections from “No Signature” chargebacks on consumer and commercial cards. No specific Interchange rate category is associated with the program and registration is not required. Eligible MCCs include all 14 small ticket MCCs listed above plus Misc Food Stores, Service Stations and Drug Stores & Pharmacies.

Visa has announced modifications to the Commercial Card Interchange structure. Those changes include an increase to Business and Purchasing Level II Interchange rate; additional eligible MCCs for Visa's Purchasing Large Ticket Interchange rate and changes to Level II and Level III qualification requirements.

Visa is separating the Commercial Product Level II rate into two categories. Business Card and Purchasing Card will increase while Corporate Card will remain the same. Large Ticket Interchange program will now include all non-travel services MCCs. The Interchange rate and registration requirements remain the same.

Visa tax exempt transactions will no longer be able to qualify for Level II Interchange. There is a concern that Level 2 merchants may not have been trained properly to enter tax amount.  A qualifying Level 2 transaction should pass AVS, invoice/order number, customer code and tax amount.  Previously a transaction would qualify as Level 2 if $0 was entered for the tax amount; however, “tax exempt” transactions will no longer qualify for Level 2.  Transactions containing a $0 tax amount will qualify as Visa Commercial Electronic, which is a downgrade resulting in a surcharge. Please make sure enter a correct tax amount (between 0.1% and 22% of the base amount) in order to qualify for the best rate. 

Level III qualification requirements will also be modified. Visa will expand the minimum Level III requirements to include additional data for Level III. Currently all of our Level 3 merchants use 3DSI to process their credit cards.  3DSI is aware of Visa's requirements for Level 3 transactions and is currently reviewing the documentation to determine if any action or modification needs to be made to the 3DSI products. If any action or modification will be necessary, 3DSI will make sure to expedite this to accommodate the April due date.

MasterCard
MasterCard has announced changes effective April, 2006. Rate changes to MasterCard Consumer Credit & World MasterCard including Merit III, Supermarket, Warehouse and Standard plus changes to Small Ticket Debit Interchange. New MCCs that can qualify for Small Ticket Debit Interchange include Bus Lines, Tolls, Bridge and Road fees, News Dealers and Newsstands, Laundry Services, Dry Cleaners, Quick Copy and Care Washes. MasterCard will increase rates on MasterCard Face-to-Face and Corporate Data Rate II.

MasterCard has also announced the addition of the MasterCard Cross-Border Assessment Fee to be billed on any transaction in which the country code of the merchant differs from the country code of the cardholder. An example of Cross-Border would be a U.S. merchant who is processing a foreign card. The assessment fee will change depending on using local currency or currency other than that of the merchants location. US merchants settling in US currency will incur a 10 basis point assessment from MasterCard when accepting a foreign card/currency.

We will keep you posted with additional information as it becomes available.

Fall 2005 Overview

MasterCard and Visa are competing card associations and have different Interchange pricing and qualification schedules. Effective April 1, 2005, both organizations will institute changes to their Interchange programs. MasterCard and Visa Interchange is the single largest component of your merchant discount rate pricing. All banks and merchant processing companies operate from the exact same Interchange, Dues and Assessment costs. Card Association Interchange is the fee paid by the merchant to the cardholder's issuing bank for processing a transaction through the system. Interchange is priced at the transaction level and depends on the combination of your industry category code, the method by which you accept the card, the card product you accept and sometimes even varies by transaction size. You will likely have card transactions throughout any given day all qualifying at different Interchange levels.

Rewards Card Interchange Rate Categories
In April 2005, both Visa and MasterCard established new Rewards Card Interchange rate categories. World MasterCard is an elite program that provides cardmembers with premiere services and benefits including a dollar-for-dollar rewards program and an unlimited spending limit. Visa has two card programs:

Visa Traditional Rewards – Consumer CREDIT card programs that meet the minimum rewards standards (example: point accruals for merchandise, travel, etc). These cards may not have markings for merchants to know they are considered a Traditional Rewards card.

Visa Signature – These cards are clearly marked with the Visa Signature brand mark, have no pre-set spending limit and typically feature more extensive cardmember rewards and benefits that a Traditional Rewards card.

Both World MasterCard and Visa Rewards & Signature transactions incur a higher Interchange.

Effective October 2005
Visa will allow credit card issuers to move consumers between different card products, including rewards programs, at the card level, without the need to issue a new card. This is part of Visa's effort to eliminate the need for Issuers to re-issue a new card number whenever a cardholder is approved for a new card product. Visa will implement processing that will allow Issuers the flexibility to define product attributes at the card level, for each transaction. This enhancement also prevents the need for cardholders and merchants to make changes to a recurring payment account number when the cardholder is approved for a new card product, and is currently limited to U.S. Consumer Credit programs, and applies to Visa Traditional and Visa Traditional Rewards products.

To support this enhancement, Visa has redefined the last position of the Authorization Code using the following values:

A= Visa Traditional
B= Visa Traditional Rewards
C= Visa Signature
D= Visa Infinite

Client Impact
Clients should be aware of these new processing rules involving the identification of the card product for Interchange qualification purposes as this will potentially increase the costs to merchants to process credit card transactions. It may be difficult to predict the impact of these changes on your business, because the price you will pay depends in large part on the types of cards your customers use when they pay you.

The Bottom Line
If you currently have a tiered rate structure with a qualified, mid-qualified and non-qualified bucket pricing, then you will find that many of the transactions that once were consider qualified will move to the mid or non qualified rate bucket. Traditionally, most merchants only paid attention to the qualified rate, so providers have build huge margins into their mid and non-qualified pricing. Merchants today must pay even closer attention to MC and Visa downgrades when analyzing statements for savings. Contact Vantage Card Services to speak with one of our payment consultants who can help you evaluate the impact this latest round of card association Interchange changes.

Additional savings analysis should be considered if on your current rate structure you pay the same rate for both MasterCard and Visa. MasterCard will increase the base rate for retail swipe card transactions by 0.09%. Visa’s base retail rate will remain unchanged. If you currently pay the same rate for both MasterCard and Visa transactions, you will want to consider changing to a custom price structure.

Collecting payment can be equally complex in terms of pricing, regulations and technology. As credit and debit card acceptance has become increasingly widespread, the need for a professional consultative approach to help retailers evaluate payment processing costs and solutions has never been greater.

Vantage Card Services, Inc. offers professional consultation with a focus on bottom line savings, technology, risk and compliance education. In this complex and ever-changing industry, where new regulations and new fees are announced regularly, the seasoned professionals at Vantage understand the value in helping clients stay in compliance to qualify for the best pricing.

Please contact us for personal consultation at 800-397-2380.