PayPal Technology May Overtake Visa, MasterCard

Consumer payment networks MasterCard and Visa intend to levy the highest allowable debit card fees onto merchants for small purchases. The fee per small transaction will be increased from 8 cents to 23 cents and both companies will waive the “interchange” portion of the fee, claims Thomas McCrohan, an analyst for Janney Capital Markets, according to Bloomberg.

McCrohan went on to say that drastic fee hike will “kill the economics for small ticket debit purchases and influence a shift back to credit cards,” and that the spike in small debit card transaction fees “will almost certainly lead to a merchant revolt against the card networks,” as reported by the Washington Post.

“This pricing change demonstrates the risk to small ticket merchants that accept debit cards,” McCrohan said.

And big ticket merchants as well, such as coffee chains like Starbucks, wherein the vast majority of day-to-day transactions are small purchases.

“These operators will be violently opposed to this price change,” said McCrohan. He surmised that the fee increases could very well cause some companies to stall making investments in the new technology required in order for them to begin to be able to allow customers to pay via new mobile payments systems as a response. The fees also have the potential to “reinforce merchants’ view that the networks are not friends of merchants,” reveals the Washington Post.

Here are the suggestions that the Washington Post claims McCrohan offered by way of explanation for why the card networks might hike the fees:

• to help the banks that issue cards bearing their logos recoup lost revenue that will result from the regulation limiting debit card fees.
• to push merchants to accept mobile payments and consumers toward using new technology known as mobile wallets, which aim to make it possible to use cell phones like cards by tapping their phones on wireless-capable payment terminals, instead of swiping a card.
• in response to a longstanding merchant lawsuit over the fees they are charged for processing payments, which McCrohan said is rumored to be near a settlement.

It is likely that the McCrohan’s first suggestion, banks’ effort to recoup some of the estimated $8 billion in lost revenue due to the Durbin Amendment, is the main influence.

“MasterCard recently informed our issuers that we will implement a two-tiered interchange structure,” James Issokson, a spokesman at MasterCard, said in an e-mailed statement, according to Bloomberg. “As we have noted throughout this process, setting price caps will -- and has -- created distortions in the market.”

As of yet, there has been no comment from Visa on the matter of the small transaction debit cards fee increase.

Lauren Palmer

Lauren Palmer is a freelance writer who is a regular contributor to a variety of online and print publications. Although she has much to say about many subjects, she specializes in topics pertaining to personal finance. She holds a bachelor’s degree from NYU in journalism.