Good News: MasterCard to offer lower rates for debit cards

Good NewsMasterCard is modifying the Merchant and Full UCAF interchange rates for both Consumer Credit and Unregulated Consumer Debit.

For more detailed information about these changes please refer to the MasterCard bulletin at MasterCard Connect.

Note: this is a free public resource provided by MasterCard that will require registration.

Well let’s start with some basics. For those on a “cost plus” pricing model this change will directly and immediately help you reduce the cost of debit card acceptance.

What does “cost plus” mean for merchant processing?

Cost plus in its most generic sense means the cost incurred by your provider plus the provider’s markup. A simple example: When you buy carrots from your local grocer the cost is equal to the price paid by the grocer to obtain the carrots plus an additional fee charged to you by the grocer to cover all their other expenses and earn a profit.

More specifically with credit card processing, cost plus pricing means that the amount charged to you (the merchant) is calculated as the pass-through cost paid by your payment processor plus a processing fee to cover their expenses and to earn a small profit. These pass-through costs most often include such things as transaction fees, network fees, dues and assessments and interchange with interchange representing the most significant portion of the expense.

The alternative to a cost plus pricing model is usually some form of aggregate or tiered “flat rate” pricing. Flat rates have the benefit of price assurance and less variability in cost but because they are usually set based on the more expensive card options they tend to be a higher overall fee than cost plus models.

What amount of savings can you expect to see and when?

Effective April 17, 2015 MasterCard will be lowering the default interchange rate on unregulated consumer debit cards to 0.65% + USD 0.15 with a USD 2.00 maximum. This new rate applies to Education and Government merchant category codes (MCC’s) only, most notably:

  • MCC 8211 (Schools, Elementary and Secondary)
  • MCC 8220 (Colleges, Universities, Professional Schools, Junior Colleges)
  • MCC 8299 (Schools and Education Services – not elsewhere defined)

Your overall savings will depend on many factors. How many MasterCard debit card payments are you receiving? What is a typical payment amount?

This new rate of 0.65% represents a significant discount over the prior rate of 1.15%. Additionally, the USD 2.00 maximum is likely to have a meaningful impact at most schools, Colleges and Universities where payments are often greater than $300.00

Payment acceptance of credit cards as well as other alternative methods requires careful consideration and strategy. If you would like to learn more about assessing your approach to payment acceptance, download our free eBook: A More Strategic Approach to Payment Acceptance.
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