One of the negative impacts of the way the card networks chose to implement debit interchange fee regulations was the establishment of a fixed fee for all transactions, which had a regressive effect on the cost of accepting small value transactions. In this American Banker ThinkBank commentary, the author agrees with the premise that cost of acceptance is not relative to the size of the transaction (which is not the dog in this fight, so we’ll leave it to another time to discuss), therefore, by aggregating small value transactions into batches the market can extract greater cost efficiencies.
A $50 withdrawal could be automatically initiated and loaded onto the chip in a single transaction while making a payment at the point of sale, enabling the consumer to then spend that money in small increments, at multiple merchants, without a further need to involve the issuer, or having to visit an ATM. Meanwhile, on the merchant’s side, all the individual LVP transactions are aggregated and submitted at the end of the business day. The result is that the ten or more small payments can be processed at the cost of a single transaction.
Regardless of whether one agrees with this idea or not, the interesting point is the fact that the industry is finally at the starting point of considering the multiple uses for chip cards, beyond those envisioned by the original EMV-based strategies. In a market like the United States, which is all about commerce, we would expect to see more rapid product development that leverages smartcard technology.
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