Thursday, February 13, 2020
Spring will soon be upon us and that means the card networks are preparing to introduce new interchange rates. It happens every year, but this time around the changes are generating a significant amount of press coverage.
“Visa is planning the biggest changes to swipe fees in a decade,” proclaimed a headline in Bloomberg News. The news drew a sharp rebuke from retailers, with the Retail Industry Leaders Association protesting that the planned changes are evidence of a “broken” market in need of government intervention.
“More people are using plastic, and more merchants accept cards than at any point in our history,” said Austen Jensen, RILA senior vice president for government affairs. “In a free market with competition, that would drive costs down, not up. There is only one reason Visa is preparing to hike fees on merchants – they can.”
Visa and Mastercard revise interchange fees twice a year – typically in April and October. The adjustments often aim to encourage card acceptance in certain categories of merchants and/or to capitalize on increased usage in others. Visa began advising acquirers of its pending changes in early February. Mastercard, which often follows Visa’ lead on interchange pricing, has not yet informed acquirers of its planned interchange rate changes for this spring.
“The U.S. credit interchange structure has been largely unchanged for the past 10 years,” Visa wrote in a document Bloomberg said it had obtained.
“The big difference we’re seeing this year is a focus by Visa on MCC [merchant category classification] codes that are particularly cash [or check] heavy,” said Sal Rehmetullah, president and co-founder of Fattmerchant. These merchant categories – which include health care, education and real estate rentals – could see interchange rates fall by as much as 30 percent, he said.
On the other hand, card-not-present merchants, particularly those in the ecommerce space, will see a spike in interchange rates. The interchange on a traditional Visa card used to pay for a $100 ecommerce transaction will increase from $1.90 to $1.99, while the fee for premium Visa cards will jump from $2.50 to $2.60. “This is happening because we’re seeing so many more payments shifting to that world,” Rehmetullah said.
Executives at Global Payments Inc., queried on the planned rate hikes during a Feb. 12 2020, earnings call, said the changes will be good for business. “Any change in interchange pricing is good for us as a company,” said Jeffrey Sloan, Global’s CEO. “We, of course, prefer prices to our customers to come down.” But it’s not unexpected, he stated, adding that “it’s obviously something we’re very well prepared to accommodate.”
Sloan also noted that Global’s ability to continue to drive more value-added services and deliver more innovative capabilities to it products “is only providing more of a tailwind for us to be able to maintain a stable pricing environment across the core part of the processing solutions that we deliver.”
Cameron Bready, Global president and chief operating officer, echoed that sentiment and suggested the planned changes are reasonable. “We feel very good about how we’re positioned in the market, and I think the overall pricing behavior in the market continues to be relatively rational,” he said.
The RILA’s Jensen, isn’t swayed. “Our payments market is broken,” he said. “In the absence of true competition, it’s time for lawmakers and regulators to step back in to prevent the largest card networks and banks from fleecing American merchants.”
Rehmetullah, for his part, noted that there are steps merchants can take to cushion the blow of higher interchange, such as capturing Level 2 and Level 3 data for card payments. Level 2 and Level 3 data generally is captured for B2B transactions, and details information such as product codes, tax amounts and customer codes. “Obtaining more information when people check out online will help to mitigate and lessen the impact” of rate hikes, Rehmetullah said, adding, “We see more opportunities than challenges” from the planned changes.
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