Visa Debit – How Does It Compare To Interac Debit?

So what’s the big deal with Visa Debit anyway?  The promise of the introduction of this card has raised some serious debates over the last 2 years… and could be the one product responsible for the introduction of the Canadian Code of Conduct.  But with all the chatter, what’s the real deal?

Visa (and MasterCard for that matter) actually have their debit products in all regions of the world except for Canada.  A huge void in their portfolio seeing as Canada ranks second in total number of debit transactions processed in the world – second to only Sweden.  And in most regions, Visa’s debit product actually out transacts their credit product.  So with a market and opportunity this big, Visa is salivating at the opportunity at their piece of the pie.

However, the issue remains with pricing.  Visa’s current posted interchange rate is 0.25% plus 5 cents per transaction.  In comparison, Interac charges only 0.007 cents per transaction as their switch fee.  As a merchant, the interchange and the switch fee mean very little because what you’re actually paying is the merchant discount rate and the Interac debit transaction fee to your Acquirer.  So let’s just say, the Acquirer needs to make the same spread on each transaction… in this example, we’ll use 4 cents as the processing fee.  And we’ll take a $100 transaction as the base for our example.  If you process a $100 transaction with a Visa debit card, your total fee is 34 cents.  Compare that to the Interac debit fee of 5 cents (and that’s rounding it up), the outrage sparked by the merchant community is quickly justified.

Another important feature of the Visa debit card is that it allows customers to chargeback their transactions just like a credit card transaction.  Interac debit has always offered a good funds model for all their transactions.  This means that if the merchant has properly authenticated their transaction, the cardholder is not able to dispute the transaction with the merchant… any disputes are dealt with directly with the Issuer.  However, Visa debit disputes become the merchant’s responsibility to argue.

So how does Visa expect to penetrate this Canadian market by implementing a product so clearly unattractive to merchants?  By focusing their efforts on the cardholders.  Let’s face it, it’s the cardholders that will ultimately drive acceptance.  If you as a merchant get enough requests from your customers to accept these cards and you start to lose sales for not accepting these cards, then you may start to consider the possibility of acceptance just to save your business.

But, right now, it’s still an uphill battle for Visa.  Visa needs to convince their Issuers to issue this card and in order to do so, they need to show acceptance in the market.  Otherwise, why would their Issuers spend the money to issue cards that cannot be accepted anywhere?  So for the time being, the control is still with the merchants.  But this control is temporary… Visa is actively out there speaking with merchants and offering incentives for the larger companies to accept.  And all it takes is one large merchant to start accepting to change customer behaviour.  And once a customer makes a choice in their preferred card, it’s extremely difficult to change that back.

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Matthew Hunt has been helping small businesses get set-up with Canadian Merchant Account Services since 2007 and helped 1000's do so. Join Matthew on Google+.

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