Banks prefer to issue cards that generate higher interchange fees, so Visa and MasterCard compete by raising interchange rates, creating premium card products which command higher interchange, and offering scheme debit cards with higher rates than national debit cards. The race to raise interchange rates has been a major area of competition between payment brands. This was all well and good as long as merchants put up with it. Since merchant pushback has become much stronger, Visa and MasterCard both recently announced new rates that have hardly increased from last year, and that have even been reduced for low value transactions (see Green Sheet here).
In order to continue competing by raising interchange rates, the payment brands have to provide much more value to merchants. Here’s a new competitive race: which payment brand will be the first to make its cards the most attractive to merchants, so merchants feel that they absolutely have to accept those cards, even at a higher cost? Banks would naturally be attracted to that payment brand, and could switch more of their cards over to that brand.
In the past, Welcome worked primarily with individual banks to help enhance the bank’s brand and differentiate it against other banks. This resulted in closed loop deployments which have been very successful for large issuer-acquirer banks. Today, we are increasingly working at the payment scheme level, on open loop deployments that enhance a specific payment scheme brand in a given country, so that the scheme brand can compete by offering merchants a more attractive payment solution. That’s the best way for payment schemes to reduce pressure on interchange.
We expect to see tremendous growth in our activities through this strategy. The first deployment will be with Visanet Brazil, the exclusive Visa acquirer, owned by Visa and the major Brazilian banks. XLS will be used to enhance the Visa brand and make Visa credit and debit cards much more attractive to merchants at the moment of payment, so merchants will encourage their customers to use Visa. Stay tuned for full details in the official press release.