Thursday, August 31, 2023
The Wall Street Journal reported that rate changes slated to take effect in October and April 2023 could cost merchants an additional $502 million, citing an analysis by CMSPI, a consulting firm that works with merchants.
"Even amidst regulatory scrutiny and lawsuits from industry, initial estimates suggest the next round of card network fee increases could be one of the most costly yet," Christian Johnson, global advocacy manager at CMSPI, wrote in a blog post.
"With small businesses and families already dealing with high prices on groceries and gasoline, this hidden credit card fee increase could not come at a worse time," Senators Dick Durbin, D-Ill., and Roger Marshall, R-Kan., said in a statement in response to the Wall Street Journal report.
Visa and Mastercard have a long history of adjusting prices twice a year, in April and October. Some changes are intended to encourage card acceptance in specific verticals (for example, healthcare) with lower rates, while others aim to take advantage of established verticals (for example, ecommerce) with higher rates. Changes also can be based on card types (for example, premium rewards versus plain vanilla).
During the pandemic, Mastercard and Visa tabled many planned fee increases, in part due to jawboning by lawmakers. The hiatus ended last April. However, with increases that ranged from 0.06 percent to 0.45 percent, many of those increases were associated with premium cards.
This time around digital merchants could be hard hit with higher costs, Johnson wrote. Visa plans a new digital enablement fee of 0.01 percent, effective in October, that he estimated could cost merchants more than $154 million annually. Mastercard plans a new 2 cent charge for any subscription renewal transaction gets declined due to insufficient funds.
Johnson also wrote of sector-specific fee increases for travel and supermarket merchants. He added that CMSPI's analysis suggests "almost all card-accepting businesses will be affected" by planned fee increases.
Senators Durbin and Marshall, in a statement, said news of the planned rate increases "solidifies" the need for legislation curbing the card brands. The two lawmakers introduced legislation last year, and again this year, that takes aim at Visa and Mastercard and card-issuing banks.
That legislation, the Credit Card Competition Act, would require the largest bank issuers of credit card to make those cards usable on at least two processing networks, only one of which can be owned by Visa or Mastercard. The intent is to allow merchants to choose over which networks their transactions get processed. Similar legislation has been introduced in the House.
In July, the two senators tried, but failed, to have the bill attached to legislation funding military projects.
"We need to bring real competition to the credit card industry. Our bill ensures that the Visa-Mastercard duopoly ends their price gauging tactics that disproportionately hurt American families and small businesses," the two lawmakers wrote in reaction to the news of impending fee increases.
Richard Hunt, executive chairman of the Electronic Payments Coalition (which lobbies Congress on behalf of financial institutions and card networks), urged lawmakers to "not fall" for the narrative that merchants are being gouged by banks and the card brands.
EPC's analysis shows the average interchange rate in the United States rose just 0.1 percent between 2014 and 2020. Yet over the past few years some merchants have charted double-digit growth. For example, Hunt said, the average gross margin on gas sales by convenience stores rose 40 percent last year, according to the National Association of Convenience Stores.
"Big box retailers, led by Walmart and Target, and their allies in Congress continue to distort the truth about interchange," Hunt said. 
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
