Thursday, March 10, 2016
The group further noted U.S. interchange fees and assessments are higher than other developed nations, in some cases as high as 4 percent or $4 for every $100 spent. "That's a 10,000 percent profit margin, since the transaction costs the bank only a few cents," MPC stated in its latest bid to bring what its members believe will be enhanced competition, transparency and reforms to payment processing.
"Successful reform measures in the European Union and Australia have exposed the true cost of these hidden fees to both the consumer and the merchant," said Jennifer Hatcher, Senior Vice President of Government and Public Affairs at the Food Marketing Institute, an active member of the MPC. "We encourage Canadian legislators to expose the cost of these hidden fees and rein them in."
As MPC members have observed, the Durbin Amendment (Section 1075 of the 2010 Dodd-Frank Act) has impacted debit card fees and routing throughout the global payments ecosystem. An independent study published Feb. 22, 2011, by Australian consulting firm TransAction Resources examined the impact of Durbin-inspired regulatory reforms on debit cards in the Australian market. The report found escalating usage and spend in both credit and debit card products and ultimately determined that "regulated interchange reductions appear to have had no impact on usage or growth."
Increased credit and debit card usage has benefitted card brands and banks, the report authors also stated. "The profitability of credit card issuers appears to be, at worst, unchanged and in at least some cases, improved," they wrote. "Although the issuers have suffered a drop in interchange income, they have rearranged their portfolios and restructured their operations to reduce costs and improve efficiency."
Australian major banks ANZ, Westpac and Commonwealth Bank reported that new interchange regulations had not adversely affected their issuing businesses. The authors anticipate similar results elsewhere as European countries examine card brand pricing structures.
"In Europe, interchange reform has occurred in a number of countries, including Spain, Switzerland and Poland as well as for cross-border interchange fees for both Visa and MasterCard," the authors wrote. "A number of other EU countries, such as the UK and Italy, are in the process of reviewing interchange fees and how they are set."
MPC members collectively represent about 2.7 million stores with approximately 50 million employees. The organization's increasingly strident bankcard rate bashing combined with a rising number of alternative payment methods pose a unique set of challenges to merchant service providers.
Steven Feldshuh, President of Merchant's Choice Payment Solutions East in New York City, has seen a sharp increase in card-brand assessment fees since Visa Inc. and MasterCard Worldwide went public. "Just a few years back we didn't see the access fees such as $0.0155 to $0.0195 with each transaction, and assessments were lower," he said. "We also didn't have the Visa FANF fee, which, again, adds to the cost of the merchant."
Feldshuh went on to say that card company fees are based on transaction type and processing method. Processors, acquirers and ISOs will then add an incremental amount to each transaction. Price increases and associated costs of migrating to EMV (Europay, MasterCard and Visa) chip card acceptance have prompted some U.S. ISOs to create incremental fees or embellish interchange assessments and access fees, a practice Feldshuh does not endorse.
"If a processor is playing fair and not cheating, then their margins have shrunk; ours have," Feldshuh said. "For example, three years ago a deal may have been sold at Interchange Plus .30% + $0.20. Today we are lucky to sell at IC + .10% + $0.10."
Feldshuh said that at least the Dodd-Frank act has saved merchants money on debit card transactions. "Merchants should be encouraging their customers to pay by debit card whenever possible," he said. "And MLSs should educate their merchants on the value of accepting debit cards or asking for a different payment card if a card doesn't swipe; simple things like that can work wonders."
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