NEW YORK -- In a move that could discourage some retailers from accepting debit cards for small transactions, Visa Inc. and MasterCard Inc. are raising the fees merchants pay for small-ticket debit purchases, according to Thomas McCrohan, an analyst with Janney Montgomery Scott. He said the credit card companies plan to increase the fees, which ultimately are paid to banks, not MasterCard or Visa, to 23 cents per transaction, reported MarketWatch.
Currently a retailer pays about eight cents for a $2 cup of coffee purchased with a debit card, said McCrohan, who believes that the increase "will kill the economics for small-ticket debit purchases."
He added, "It will almost certainly lead to a merchant revolt against the card networks."
Visa and MasterCard would not directly comment on McCrohan's note, but have said they would change debit-card fees in response to new federally regulated caps. Any increase in fees for small-ticket transactions likely would not affect all merchants the same; rate changes by the companies can affect merchants differently because fees vary depending on the type of retailer and, in some cases, the volume of card purchases, MarketWatch said.
A key driver of the fee increase, McCrohan said, are rules the Federal Reserve Board finalized in June that limit the interchange fees merchants pay when a consumer uses a debit card to 24 cents per transaction. The cap applies to banks with assets of $10 billion or more.
MasterCard, in a statement provided by a spokesperson, told the news agency, said it recently informed its banks that it will implement a "two-tiered interchange structure" for debit and prepaid cards for issuers affected by the cap and those that are exempt.
"We regularly review market conditions to balance the needs of all constituents," MasterCard said, adding that price cap regulation "will--and has--created distortions in the market."
Visa declined to comment. According to the report, at a conference in New York on Tuesday, Bill Sheedy, group president of the Americas for Visa, said the company had notified clients of some rate changes it is making but did not discuss specifics.
"We need to make sure that we strike that right balance between driving value to the consumer and the merchant on small ticket" purchases, Sheedy said.
Any increase in the fees charged on small transactions could help banks that issue debit cards, such as Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co., offset some of the billions of dollars in revenue they will lose annually as a result of the swipe-fee caps, the report said.
The new limits stem from a provision in last year's Dodd-Frank financial overhaul legislation known as the Durbin Amendment. The caps could eliminate $6.6 billion in revenue annually for such banks, according to an August report from Javelin Strategy & Research cited by MarketWatch.
In June, the Federal Reserve Board finalized rules that cap debit-card fees to 24 cents per transaction, including an allowance for fraud costs, compared with a current average of 44 cents. The caps take effect October , 2011.
McCrohan wrote in his note that the companies' price increases could be meant to help their partner banks make up revenue they stand to lose under the new caps.
Raising fees on small-ticket debit purchases could hurt self-service kiosks, such as DVD rental kiosks, which "benefit from debit-card acceptance," McCrohan wrote.
Click here for previous CSP Daily News coverage on interchange fees.
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