Monday, March 7, 2022
Reuters reported that Visa is planning to slash interchange rates for small businesses by 10 percent, effective in April. The news agency said the plan was detailed in a Visa document it had reviewed and that a Visa representative had confirmed the authenticity of the document. The rate reductions will apply to online and in-person transactions at merchants with $250,000, or less, in Visa consumer credit card transactions, according to unnamed sources quoted by Reuters. No other details were made available.
Visa and Mastercard revise interchange tables twice a year—in April and October. Those revisions, announced in the form of bulletins to acquirers and their sales partners, typically include rate increases, but also some reductions.
Both Mastercard and Visa shelved plans for major interchange revisions in 2020 and again in 2021 due to the pandemic and browbeating by ranking members of Congress, like Senator Dick Durbin, D-Ill., authored legislation that bears his name and ushered in federal caps on debit card interchange.
News of the rate reductions came as the Merchants Payments Coalition unveiled a new ad campaign pressing for government intervention on interchange rates.
The MPC said in a press release that the "six-figure campaign" will use social and traditional media outlets in the Washington, D.C., area to push its message. The intended audience: members of Congress; their staffs; and policymakers at agencies like the Federal Reserve, the Federal Trade Commission and the Department of Justice.
MPC, the group largely credited with coining the phrase "swipe fee" to describe interchange to the public more than a decade ago, said the campaign comes as Mastercard and Visa prepare to hike interchange next month. They claim the planned increases will cost retailers an extra $1.2 billion a year.
But that claim is now called into question. According to the document reviewed by Reuters, the planned rate reductions will help 90 percent of U.S. businesses.
The $1.2 billion figure given by MPC appears to be based on an analysis conducted last year by the consulting firm CMSPI, which estimated a total net impact of $1.15 billion if Visa and Mastercard pricing changes slated for April 2021 were to take effect.
"Large U.S. credit card companies and banks take hard-earned money out of consumers' pockets every day. What's worse, they want to take even more," asserts one MPC ad. "Stop unfair fees. Tell Congress to reform credit card swipe fees."
"While the country is still on the road to recovery, credit card companies and banks are still raising fees that already cost businesses and consumers billions," states another. "Support small businesses. Tell Congress to reform credit card swipe fees."
The MPC argues that rising interchange rates make for a double whammy for businesses and consumers who already are dealing with rising prices due to inflation. The consumer shift away from using cash with the onset of the pandemic also contributes to rising costs, the MPC said. The Fed recently reported that cash accounted for only 23 percent of purchases in 2020, down from 32 percent two years earlier.
Visa and Mastercard have garnered plenty of scrutiny from Washington over the past few years. Both the FTC and DOJ have launched investigations into allegations that the two card giants block retailers from processing debit card transactions through less expensive regional ATM/POS networks. The two agencies share jurisdiction over antitrust matters involving consumer payments.
Under the Durbin Amendment, merchants are supposed to be provided with two unaffiliated choices for routing debit card payments. The regional ATM/POS networks were built around PIN verification. As consumer adoption of ecommerce and mobile payments grew, however, the regional networks developed technologies that support debit card payments without PIN authorization, known as PINless debit.
But for PINless debit to work, debit card issuers need to enable PINless functionality. Merchants complain that many of the largest issuers have been slow to enable this functionality, and they allege Visa and Mastercard have encouraged this through pricing incentives. According to an analysis published in 2020 by CMSPI, about half of card-not-present debit card payments accepted by merchants can't be routed through the regional networks because the cards don't support PINless debit.
Last year, the Fed proposed changes to the rule set that implements the Durbin Amendment, making it clear that the merchant choice requirements apply to PIN and PINless debit card payments. No final rule change has been announced yet.
In October the Wall Street Journal said the DOJ's antitrust investigators also are looking into Visa's relationships with certain financial technology firms, notably PayPal and Square. They want to know if Visa is providing financial incentives to PayPal and Square for routing credit and debit card payments through its network, the newspaper said, citing "people familiar with the matter."
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