Page 30 - GS240302

Education

Processor auth fee, zero floor limit, mag stripe contactless, feet

2.0, dispute related fees; Mastercard's transaction pro-
management cessing excellence, authorizations, clearing, chip data
integrity, dispute related fees.

for NIPTFs Unless behavioral fees are set up for direct pass through
to merchants for non-compliance (with an understanding

By Ken Musante of the offending behavior), merchants aren't incentivized
to modify behavior.
Napa Payments and Consulting Freeze frame
lthough I wrote about card network non- Pass-through merchants should absorb 100 percent of
interchange pass through fees (NIPTFs) in the these cost increases. That’s what they signed up for and
fourth quarter of last year (see www.greensheet. that is what their acquirer expects. However, because
A com/emagazine.php?article_id=7388), given the some of these fees are new, processors aren't properly bill-
amount and increases in these fees, I thought it appro- ing them to merchants and are inadvertently absorbing
priate to provide this companion piece to elaborate on these cost increases. Also, is a disproportionate impact on
those changes and their impacts on acquirers. For brevity, CNP transactions, so different acquirers are impacted dif-
I'll limit this discussion to the acquiring, and although ferently.
Discover and American Express have similar fee struc-
tures, I'll focus on Visa and Mastercard. Also, to recap, Money shot
NIPTFs are paid directly to the card networks and, unlike
Interchange, are not returned in the event of a return or Martha Rhine www.linkedin.com/in/martha-rhine-a05395,
chargeback. a colleague and Director at Consulting Resource Group
recently conducted acquirer audits. She found differing
Wide lens reasons for acquirers' failure to pass these NIPTFs along.
Some were not validating card network increases coded
Before 2006, when Visa and Mastercard were associations, for in the card network release packages and unknow-
the NIPTFs were simple and lower: nine basis points of ingly absorbing the costs. Others didn't understand they
gross processing volume for U.S. acquirers. Since then, could be passed along to merchants. Specific to the be-
they have nearly doubled. For some merchants selling havior modification NIPTFs, an entire campaign could be
cross-border and lacking authorization fidelity, they have set up to minimize these items and provide acquirers and
skyrocketed. merchants a competitive advantage.
Zooming in
Rhine mentioned the first step is to undertake a compre-
Some fees, such as the APF, NABU and the monthly fees, hensive analysis of validating all the incoming NIPTFs by
came about because of the Durbin Amendment and a re- card network. From there, the costs should be incremental-
action to the income the card networks would be losing ly tracked by use case and decked out against merchants
because of traffic migrating to the alternative debit net- in accordance with their pricing scheme. As needed, be-
work. These increases are typically not factored in when havior modification and educational programs should be
studies are done on the impact of the Durbin Amendment implemented. Rhine will be publishing a white paper on
on costs. Because Visa and Mastercard are duopolies, this topic at www.consultingresourcegroup.com/niptf.
merchants are price takers and not able to avoid the im-
pacts. There are four types of NIPTFs. All directly impact Interchange continues to garner the lion’s share of mer-
the profitability of single rate acquirers as they pay one chant consternation. It should. It's larger and more impact-
rate, regardless of the NIPTF. Consequently, the acquirer ful than NIPTFs. But, in a game of scale, NIPTFs are mean-
or payfac must absorb the costs or raise the end pricing. ingful and should be further understood and managed
Acquirers with cost-plus (pass-through) merchant pricing to optimize profitability for processors, platforms and
may also be incurring expenses, if they're not ensuring payfacs assisting pass-through and single-rate merchants
that new and revised fee rates are being passed through alike. NIPTFs are large, complex and growing. Acquirers
when appropriate. must ensure they are managed correctly or their margins
1. Recurring Merchant (Tax ID) NIPTFs: Visa monthly will suffer.
fees like fixed acquirer network fee (FANF); Mastercard As founder of Humboldt Merchant Services, co-founder of Eureka
merchant location fees. Payments, and a former executive for such payments innovators as
2. Authorization and authentication usage NIPTFs: WePay, a division of JPMorgan Chase, Ken Musante has experience in
APF, NABU; MC’s authorization related CNP digital all aspects of successful ISO building. He currently provides consulting
commerce fee; clearing usage NIPTFs; assessments; services and expert witness testimony as founder of Napa Payments
cross-border fees; Visa’s digital commerce fee for set- and Consulting, www.napapaymentsandconsulting.com. Contact him
tled Visa transactions. at kenm@napapaymentsandconsulting.com 707-601-7656 or www.
linkedin.com/in/ken-musante-us.
3. Behavior modification NIPTFs: Visa's misuse of
30