The reality of Visa Inc.’s new Fixed Acquirer Network Fee will begin to sink in with merchants when their next monthly statements arrive, and most will not greet the new levy warmly, observers warn.
“Merchants are struggling to cut corners, and here we are with another fee,” laments Ray Kenney, director of ISO partnerships at Cherry Hill, N.J.-based 1stPayGateway.Net.
The fee, which took effect April 1, may push some merchants to the “tipping point” of deciding to stop accepting Visa cards and seek other means of payment, Rod Katzfey, chief operating officer of Payleap LLC, a Warsaw, Ind.-based payments gateway, speculates. His company is giving customers the option to refuse Visa cards.
At least one payment industry organization tried without success to delay the fee's effective date (see story).
Most retailers seem likely to continue accepting Visa but some may switch merchant-service providers, predicts Adil Moussa, an analyst with the Boston-based Aite Group LLC.
“Any time there’s a new fee, it disrupts the market a little bit,” Moussa says. “You see attrition.”
The new fee is partly a response to a new Federal Reserve rule prompted by the Durbin Amendment within the Dodd-Frank Act, Visa tells PaymentsSource via email. The rule, which took effect Oct. 1, essentially halved the average interchange fee on debit card transactions, limiting it to 21 cents, plus a few extra pennies to cover security costs. The previous average was about 44 cents per transaction.
The card brand’s attempt to compensate for that loss of revenue could have an unintended consequence, Katzfey suggests. The new fee could rankle legislators and regulators, prompting them to begin regulating credit card interchange fees sooner than they might otherwise have done, he says.
To make matters worse, the new fee adds to other recently imposed levies causing headaches, ISOs say.
Already, many in the acquiring industry are charging merchants for failing to comply with the Payment Card Industry data security standards. Opinion varies on whether PCI fees represent reverse incentives or just another profit center.
Controversy also surrounds fees allegedly tied to an Internal Revenue Service mandate for acquirers to report merchants’ electronic transactions. The IRS plans to use the data to ferret out tax evaders.
The IRS prohibits the acquiring industry from charging fees to cover the technological changes and labor costs of reporting merchants’ electronic transactions on 1099K forms. But some ISOs tacked new fees on to merchants’ bills just the same and called them by other names, observers say.
No one is preventing ISOs from marking up the new Fixed Acquirer Network Fee, but a couple of factors may hinder attempts to profit from the new levy.
The complexity of adding to the new fee and competitive pressure to keep prices low may combine to discourage many from raising the new fee, says Abe Maghaguian, president and CEO of Atlantic-Pacific Processing Systems Inc., a Fountain Valley, Calif.-based ISO.
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