Visa, MasterCard in Talks with Mobile Wallets for ‘Cardholder Present’ Rate

canstockphoto10068562With the arrival of Apple Pay yesterday, the mobile wallet industry has been reinvigorated.

Now, it looks like Visa and MasterCard are looking to advance all mobile wallets by lowering their transaction fees.

Payments through mobile wallets currently are charged at Visa and MasterCard’s “Card Not Present” rate — which is typically higher than purchases with a credit card in hand, since it adds risk to the transaction. However, the two major payments networks are adding a third category — “cardholder present” rate — for mobile wallet providers to cut their digital transactions costs. The lower price is contingent on the mobile wallet providers integrating their services with biometric sensors, most prominently Touch ID in Apple’s iPhone 5S, 6, and 6 Plus.

The card-present rate is on average 1.5% of the purchase price. Card-not-present, meanwhile, costs 2.75%.

Visa declined to comment. MasterCard has not responded to a request for comment.

Dave Birch, an analyst and an advocate for a cardholder-present rate, told Bank Innovation that “card-present and card-not-present are 1960s concepts that are irrelevant in modern, always-on, connected commerce. Cardholder present makes much more sense [today].”

The changing in pricing rules Visa and MasterCard are discussing with mobile-wallet providers relate to the EMV standard. Sources say the method of introducing a cardholder-present interchange rate might be made possible by increasing the current “chip and signature” transaction rate, which is between 1.5% and 2.75%. By increasing the chip-and-signature rate, Visa and MasterCard could create a new category of transaction fee — namely “cardholder present” — without lowering its base rate.

There’s only one group this pricing helps: mobile wallet services. Nothing changes for the merchants and issuers because their cut remains the same. However, mobile wallet companies — LevelUP, Google Wallet, Softcard, LoopPay, etc — now get a bigger piece of the pie, thanks to Apple, because it has apparently successfully argued to the networks that its biometric security-driven payments contain less fraud risk that chip-and-signature. Who would have thought that Apple Pay would not not kill mobile wallets, but facilitate their resurgence?

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