An ISO has stopped processing MasterCard transactions

WWS ATM Sales & Service, a Brewster, N.Y.-based ATM ISO, posted on its website a very angry message directed at MasterCard Worldwide.

MasterCard, a Purchase, N.Y.–based card association, had just revealed tiered interchange rates that cut ATM ISOs’ revenues for domestic cash withdrawals processed over MasterCard’s Cirrus network. Interchange, which is one of the main sources of revenue for ATM ISOs, goes from the card issuer to the acquirer, or ATM ISO. 

MasterCard’s announcement infuriated the owners of WWS ATM Sales & Service.

“The rest of the networks are lying in wait to see if the ISO is going to respond to all of the recent reductions that have been handed down,” the message said. “If we don’t do something now, the worst is yet to come. If you don’t believe us, ask your sponsor bank and processor.”

The message continued: “We have decided to shut-off MasterCard/Cirrus across our portfolio. Shutting off a particular network is our own decision, but it is an all or nothing proposition.” The word shut-off is spelled in capital letters. The letters are a bright red, distinguishing them from the rest the text, which is written in lower and upper case green letters.

"No other ISOs have shut-off MasterCard, to my knowledge. I do however know of several that do not intend to renew the MC registration for 2011," Darryl Ware, co-owner of WWS ATM Sales & Service, said in an interview.

WWS ATM Sales and Service was not the only ATM ISO financially hurt by MasterCard’s tiered interchange system, which it rolled out this spring.

Cardtronics, the world’s largest ATM ISO, wrote in a United States Securities and Exchange Commission filing that MasterCard's tiered-interchange system would cut the company’s ATM operating gross profit by nearly $2 million during the remainder of the year for transactions routed over the Cirrus network.

In response to MasterCard’s decision, Steven Rathgaber, Cardtronics CEO, said the company has quietly signed agreements with individual banks and bank consortiums “to lock interchange fees.” At the time, Cardtronics had agreements with 39 percent of their customers, and the ISO expected to have agreements with 50 percent before the end of the year.

Ware said card networks began cutting interchange in October 2005, beginning with Visa. “Over the last five years, other networks have followed Visa’s lead, but none is more damaging to our business model and the ISO ATM industry as the interchange reduction and fee imposed by MasterCard in March,” Ware said.

MasterCard reduced interchange from 50 cents to 35 cents per transaction, and the company imposed an 18-cent ATM support fee. “Our net interchange with MasterCard has gone from 50 cents to 17 cents over the last several years and that is before we pay our processor and our bank sponsor.”

WWS Sales & Service said it shut off its ATMs to MasterCard/Cirrus for three reasons:

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1) Why should we allow any network to access our terminal at an interchange rate that we do not feel is representative of the service we are providing to both merchants and consumers;
2) If competing networks see MasterCard retaining the bulk of the ATM interchange and improving its market share, what is their next move going to be;
3) By accepting Cirrus transactions, MasterCard would keep the interchange previously paid to our company. MasterCard would spend the funds to increase its MasterCard/Cirrus footprint of exclusive-branded cards.

WWS Sales & Service has urged other ISOs to test shutting off MasterCard/Cirrus by parking non-Cirrus terminals with their company on a month-to-month basis. Ware said shutting off MasterCard/Cirrus transactions has had a negligible effect on his company.

“It represented 7 percent of our transaction volume,” said Ware, who declined to disclose the size of his company’s ATM network. When a cardholder swipes a MasterCard-branded product into a WWS ATM Sales & Service ATM, he is told the transaction cannot be processed, Ware said.

Although WWS ATM Sales & Service has taken a strong stand against MasterCard/Cirrus, Ware believes the ISO industry should have opposed Visa’s interchange cuts to send a message to the other card networks. He said he is surprised “that the majority of our competitors have not arrived at the same logical conclusion.” 

MasterCard did not return a call for comment.