Merchant Account Fees Going Up
Two times a year, Visa and MasterCard have the opportunity to increase credit card interchange, which is part of the fees that merchants pay to accept credit cards. This year, both Visa and MasterCard have opted to add a new type of fee classified as a network access fees. This is in addition to fairly significant interchange increases. This fee will most likely have a greater affect on businesses than the typical interchange increases that we see twice a year.
When interchange fees are increased, a business's credit card processor can elect to absorb these increases, or pass them on to their customers. It is not uncommon for a service provider to leave their customer's processing rates alone and completely absorb the interchange increase. This is simply good customer service, and often the interchange rates that are being changed will have a negligible affect on the overall industry. This year however, Visa is going to add a 1.95¢ per transaction fee while MasterCard is going to add a 1.85¢ per transaction fee charged directly to processors and delivered directly to Visa and MasterCard, unlike interchange which goes mainly to the issuing bank.
When transaction and access fees like this are changed, they will almost always be passed directly onto merchants. This is because they have a profound affect on the potential amount of income a service provider receives. Losing 1¢ per transaction may even remove all profitability from a merchant account if it is written competitively enough.While smaller businesses may only see increases of a few dollars or cents per month, these additional fees are going to result in significant increases to high-volume, low-ticket merchants. A store like Amazon.com or Walmart could end up paying more than a million additional dollars per year for credit card processing.
Visa is expected to see a 300+% increase in per transaction revenue, making this an obvious attempt to bring further value to shareholders during a volatile economy. There is a lot of speculation that fee increases like these will become more common now that both Visa and MasterCard are public companies and their interests are not necessarily in-line with the merchants that accept their cards. With congressional oversight of the processing industry looming in the background, I find it amazing that Visa and MasterCard would take a PR risk like this just to pacify their shareholders. Any thoughts?
1 Comment
John B. Frank says:
Editor's Note: Yeah, I have some. Let me start by unequivocally stating that Visa and MasterCard "don't care about risk." I could go on for paragraphs, instead, I'll use my "signature" response:
Signature Debit has a 10x to 15x higher risk than PIN Debit, (depending on whose statistics you read) yet which one are they attaching rewards to? Which one are they pushing? Why? Because they don't care about RISK, they care about PROFIT. The higher the risk, the higher the interchange...the higher the interchange the higher their profit. That was Easy!
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