Visa's interchange hike pressures business

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For the first time in 10 years Visa has announced they are changing their interchange rate structure and increasing fees for card not present transactions, which now make up one of the fastest-growing ways businesses accept payments.

As originally reported by Bloomberg, interchange rates will go up or down depending on a few factors with the changes expected to roll out in April and October.

According to a document Visa sent to the banks, they noted the changes were being made in an effort to “optimize acceptance and usage,” persuading more consumers to swipe their cards instead of writing checks or using cash. However, the reality is that the change means bad news for the majority of U.S. businesses that accept Visa cards. The minor rate decreases are only applicable to a few industry types, while the majority of businesses’ card-not-present transaction rates will increase.

Interchange fees have long been a point of contention between merchants, banks, and card payments providers such as Visa and Mastercard. With Visa’s sweeping change continuing to hike up fees for credit card transactions, it is no surprise that many businesses, especially in the retail industry, are unhappy with the announced increase.

While merchants may have control over whether a customer’s card is swiped or keyed in, they have no control over what kind of card their customers use. As a result, merchants are constantly put in positions where they have to pay the price of costly interchange fees, and the markups charged by their processors.

Today there are more ways to process a credit card than ever before and there continues to be a global consumer rise in online shopping, with over $3.5 trillion in global e-retail sales alone in 2019. This is something Visa is looking to capitalize on as higher rates loom over transactions on e-commerce sites.

While businesses in the health care, education and real estate industries will see some reprieve with lower rates, the increase in fees for online transactions will affect any business that may also have an e-commerce cart, invoicing, online payments, recurring billing or card-not-present acceptance environment.

As noted by Bloomberg, for a traditional Visa card, the fee on a $100 transaction will climb to $1.99 from $1.90. For premium Visa cards, the fee will rise to $2.60 from $2.50.

On a premium-card transaction of $50 for the category that includes large supermarkets, the interchange fee will drop 33%, to 77 cents from $1.15.

Although the changes may only amount to a few additional cents per transaction, those costs add up very quickly at scale. This becomes even more of a problem when considering that many consumers are moving to premium cards that offer them generous incentives, but come with some of the highest interchange fees.

Another important note is that those affected by the hikes are not limited to card-not-present businesses, i.e. online businesses. A closer look shows that all merchants who accept credit cards where the card is not physically present will be impacted. This includes charging cards through invoicing, recurring transactions, and even by phone. With Visa’s changes, the interchange rates for these so-called card-not-present transactions will also see significant increases.

Ultimately a vast majority of merchants will be stuck paying these higher rates regardless of their category.

In another statement, Visa claimed it was up to the banks and the credit card processors to pass the difference off to the merchants. Now is an important time for businesses to pay very close attention to their current providers, especially as processing companies prepare to roll out updated fees in April and October.

For merchants in service-based businesses, make sure the savings are actually being passed down. Compare the markup being charged by your bank or payment processor with Visa’s new rates to make sure you’re actually getting the savings as intended from Visa’s modifications. Most processors use this as an opportunity to mark up additional points that may go unnoticed by these merchants.

For merchants in the e-commerce category or primary card not present environment, review proposed increases from your current provider for any additional margin that they may have tacked on. Keep an eye out for vague explanations on how transactions are going to be qualified. With the increase, it is important to make sure you’re receiving the lowest interchange rates.

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