Check the Economics of Debit
If you have been concerned about your ability to compete against Debit acceptance with Check Guarantee pricing, then you should find Visa's 1996 Debit pricing announcement very encouraging. In Visa's
Directions Information for Acquirers for the Fall of 1995, according to the Bank Card Services Association, Visa provided the answer to following question:
Question:
"Why did the CPS/Retail Rate for Debit change from 1.05 percent Plus 3 cents to 1.04 percent plus 6 cents?" (a transaction)
Answer:
"The existing CPS/Retail rate for Visa check card was originally "calculated" in 1992, adopted in April 1993, and held fixed through March 31, 1996. April 1996 is the first opportunity for Visa to revisit the rate in three years. This particular interchange rate is the product of detailed cost modeling updated annually (going forward) to reflect the unique market dynamics of the Issuer and Acquirer businesses for these types of transactions." Now if you are slow on the math, we will point out that Check Guarantee rates easily compete with a discount rate of 1.04 percent plus 6 cents a transaction. Perhaps more importantly, we should remember that a merchant will pay the Check Guarantee rate, only on the checks that they guarantee, however the Debit rate is paid on every debit transaction. Finally, the Debit rate is simply for processing the debit, or perhaps it could be described as a handling fee. We understand that the debit transaction will not be approved unless funds are on deposit, and secured on-line. For Guarantee transactions, however, the account balance is insufficient to cover the check nearly 50% of the time, and the cost of collections for those that will later be collected, cost of funds delay, and the risk of loss for the 25% to 30% that will never be collected, are all included in the rate. Given these differences, it makes Check Guarantee rates look unbelievably inexpensive by comparison, and should give you a great comparative discussion with potential customers.
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