asterCard Worldwide announced it will clamp a cap firmly onto petroleum merchants' interchange rates next year. The company will also publish its U.S. interchange rate schedule on its Web site by Nov. 1, 2006.

The petroleum cap will likely take effect in April 2007.

The moves seem designed to counter criticism from both merchants and senators leveled at the card Associations at a July Senate Judiciary hearing on interchange rates (see "Summer heat wave sweeps Senate Judiciary interchange hearing," The Green Sheet, Aug. 14, 2006, issue 06:08:01).

MasterCard said its efforts are in response to recognizing the important voice of merchants in today's payments industry.

"Among the things merchants have told us they want is additional transparency around interchange rates, and that because of the unique structure of the petroleum distribution business, gasoline retailers are disproportionately affected by high oil prices," stated Walt Macnee, MasterCard President of the Americas.

The cap will apply to consumer credit and debit cards and will provide benefits to gasoline retailers on credit card transactions of about $50 or more. "For example, on a $60 gasoline transaction, the reduction in interchange could be as much as 21%," the company stated.

Effects on ISOs

The cap on interchange would have to be implemented at the processor level and likely come out of the pockets of the ISOs, said Dee Karawadra, President and Chief Executive Officer of Impact PaySystem, an ISO that works with petroleum merchants.

"They take it from the middle guy, as if [the issuing banks] are already not making enough," he said. With gas prices in decline this month, stations will see fewer instances of gas purchases beyond $50.

"But if gas prices go up again, it would definitely impact us. The only solution I see is to start pushing [petroleum merchants] to PIN-based debit at the pump, in order to build our profit margins," Karawadra said.

If the cap becomes permanent, Impact PaySystem will work with its partners to allow consumers to pay with PIN-enabled debit cards at pump stations, as opposed to paying with credit cards.

In petroleum, there are a lot of people fighting for the same business, Karawadra said. Reducing the revenue stream will make the niche less attractive to other ISOs.

The cap on gasoline purchases will affect Humboldt Merchant Services, said HMS President Ken Musante. "But to the extent that all acquirers have the same advantage, I don't think it makes us more or less attractive than another acquirer."

Musante expects Humboldt to find an advantage in the cap by training agents to effectively sell it to merchants, thereby winning new business.

"Where that has the most benefit for us is in transactions between $50 and $100 [the point at which chargeback protection ends], not just because it costs less, but because of the way we implement it and explain it to our business partners," he said.

Musante sees MasterCard's plans to publish interchange rates as indicative of continuing growth and the progression of the industry. However, "it's not as if interchange was completely unknown to merchants," he said. Merchants with pass-through pricing have rates spelled out on their statements.

Musante compared interchange to the mortgage business, where interest rates are advertised, but each mortgage offer comes with a panoply of different closing fees. In bankcard interchange, merchant statements include a host of specific fees.

"Even if you get the best rate, to the extent you have other fees, you may still be paying a higher rate than a similarly situated merchant," he said.

And larger merchants are still going to get better rates than their smaller counterparts. Musante sees three-tier rate structures blending into six tiers and pass-through pricing becoming "pass-through plus."

The interchange rate schedule, when posted, will be available at www.mastercardmerchant.com