In a long-awaited and surprisingly aggressive move, Visa has announced that it will waive charges for credit card transactions over the Internet that use the new Visa-backed Secure Electronic Transactions (SET) protocol.
"This is the big carrot, the big incentive to get people to start using SET," said e-commerce analyst Torrey Byles. Merchants and Internet commerce experts have said lower fees on Internet transactions would create an incentive for direct marketers like Lands End, for example, to push sales over the Web instead of mail or phone orders.
The action by Visa, the largest credit card company in the world, applies only to the United States and means Visa itself will charge member banks nothing for SET transactions--potentially making them cheaper than any other kind of card transaction.
Due to take effect April 1, 1998, the waiver of some merchant fees will last for two years.
But banks assess other charges, and whether they'll pass the savings on to merchants remains unclear. Nor is it certain that merchants would cut prices for consumers because of Visa's waived fees.
"The issue is, does it change the rate that the merchants pay for online transactions?" said David Weisman, an analyst at Forrester Research. "What is needed for SET is a business proposition for merchants to invest in SET technology. But doing this much is a good sign."
Although until now Visa has been somewhat of a laggard in implementing SET, the company has the distinction of being the first card association to alter fees on SET transactions. Visa itself won't charge acquirers (merchant banks) anything for SET transactions. Also, card issuers will pay Visa nothing for SET purchases when the buyer uses a SET digital certificate. However, Visa has not changed what merchant banks charge card issuers on transactions.
"The U.S. board sees SET as being lower risk than a [mail order, telephone order] transaction," Visa International spokesman Ryan Mikolovich said. "They are adopting the philosophy of being a virtual equivalent of a card-present transaction."
Visa's move could pressure other SET endorsers such as MasterCard, American Express, and Novus, which issues Discover cards, to cut their rates to merchants too. MasterCard had no comment on whether it would take similar action.
"We do not talk about our interchange rate at all," said MasterCard spokesman Edward Dixon, referring to his company's rates on purchases. "We consider it proprietary."
Visa's waiving of some fees completely surprised Byles: "This is really making cybershopping the least expensive payment environment."
Scott Smith, an analyst with Jupiter Communications, remained skeptical about the impact of Visa's move.
"I can't imagine it'll make an overwhelming difference immediately. A lot will depend on how Visa presents this to merchants. It takes more than lowering a fee, it takes active involvement by everyone down the line," Smith said.
"This is being done to encourage merchants to acquire and install software to do SET transactions, and there will be a trickle-down effect for the consumer if more outlets start using SET," Smith added.