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NEW YORK -- MasterCard Inc. is following Visa's lead by overhauling its merchant-fee structure in an attempt to capitalize on the increasing number of credit cards offering rewards, reported The Wall Street Journal.
Under the new program, the company is establishing a new merchant-pricing tier for its branded credit cards. Previously, MasterCard's fees were based on three tiers -- one for the most basic cards and then two additional, higher-priced categories for cards offering a variety of rewards to consumers, including concierge services, event tickets and more, the newspaper reported. However, MasterCard will now split the basic tier into two groups with scores of different rates to take effect in June, according to The Wall Street Journal.
"They are pricing each tier at the absolute most they can so they can maximize their income," said Mallory Duncan, senior vice president and general counsel for The National Retail Federation, and chairman of the Merchant Payment Coalition (MPC), which is currently fighting the interchange fees.
Both Visa and MasterCard set interchange fees that thousands of card-issuing banks charge to merchants for credit- and debit-card acceptance and processing. Fees are determined by a number of factors, including the type of merchant and the type of card being used, the report stated.
MasterCard's complex overhaul -- outlined in a 100-page fee schedule -- makes it difficult to determine if the new rates, on average, are rising, the newspaper reported. The fees charged to large supermarkets, for example, appear little changed from last year, even with the new category. Merchants in that group will pay the same 1.32 percent on cards with the fewest rewards and 1.42 percent on those with rewards offered to consumers.
The new pricing structure "allows us to have a more sophisticated way to break up our [credit-card] portfolio," said Joshua Peirez in The Wall Street Journal report. Peirez oversees public-policy issues at MasterCard.
The financial institutions that issue cards are estimated to collect $25 billion in interchange fees each year. Merchants have filed a string of lawsuits against Visa and MasterCard, accusing the two card companies of anticompetitive behavior in the way they set the fees, the report stated. Those cases are pending.