The Green Sheet Online Edition
March 12, 2012 • Issue 12:03:01
New Visa, MasterCard fees stir debate within industry
Visa Inc. Chairman and Chief Executive Officer Joseph Saunders said in a Feb. 8, 2012, earnings call the company is implementing a "program for modified acceptance economics in the United States, which we believe will offer merchants greater incentive to route transactions over our network and an opportunity to lower their per-unit transaction's cost."
In the same vein, MasterCard Worldwide confirmed it will begin charging a new acquirer licensing fee starting in July 2012.
Part of Visa's plan calls for imposing a new fixed acquirer network fee (FANF), which has many acquirers questioning whether the incentives will go far enough when the new fee goes into effect in April.
Effective April 1, the FANF will be assessed by a formula that takes into account the merchant's taxpayer identification number, the merchant channel and the merchant category code (MCC). Quarterly collection of FANF will begin July 2012, for the previous quarter. Charitable and social service organizations will be exempt from FANF.
Brick-and-mortar merchants that accept Visa cards at their locations will be assessed a FANF for each location. The fee accelerates according to the number of locations.
For example, a merchant with one to three locations will pay a $2 monthly fee per location; merchants with 4,000 or more locations will pay $65 or more per location monthly. Card present, high-volume MCC merchants, will pay $2.90 per month per location for one to three locations; those in this category with 4,000 or more locations will pay upward of $85 total per month.
For card-not-present merchants, merchant aggregators and most fast food restaurants, the FANF will be assessed according to gross merchant sales volume on Visa cards. Merchants in this category who process between $8,000 and $39,999 per month in gross card sales will pay $15 per month.
Higher volume merchants with gross card sales in excess of $400 million will pay a monthly FANF of $40,000. In all, there will be at least 16 tier pricing levels for this category.
On the incentive side, Visa said it will reduce variable fees, starting April 1, by cutting the network acquirer processing fee (APF) on Visa debit transactions from $0.0195 to $0.0155 per transaction.
Visa spokeswoman Erica Harvill said the reduction in interchange fees that went into effect last year as a result of the Durbin Amendment to the Wall Street Reform and Consumer Protection Act of 2010 has changed the competitive landscape.
The Durbin Amendment encouraged card competition by demanding merchants be given a choice of where to route transactions. "To enable Visa to compete in the new environment, we have revised our business strategy in a manner designed to benefit merchants, financial institutions and Visa," she said.
Harvill said the new fee schedule is "designed in a way that is intended to reduce the cost of Visa acceptance. Ultimately these changes should provide merchants and acquirers with financial incentive to route transactions to Visa. The more transactions they route, the lower the cost per transaction. These changes ... will result in a reduction in Visa's acquiring fees in aggregate."
Implementation of Visa's FANF has spurred much debate within the GS Online MLS Forum community. Forum member AMSPROCESSING noted, "Visa is implementing a new $2 monthly fee for card present merchants and a sliding scale monthly fee for card not present merchants. The sliding scale is based on volume. Merchants that process card present and card not present get hit with both fees."
SCAINE wrote, "The increases and new fees coming in April (and likely again in October) are simply evidence of Visa and MasterCard's fiduciary responsibility to their shareholders to increase revenues, profits and shareholder value. As long as volume growth remains anemic, fees like this will continue to be implemented. The game changed when these associations went public."
CLEARENT said, "This isn't a surprise by any means (at least it shouldn't be) and merchants ultimately will pay for it (as usual)." In an interview outside the Forum, CLEARENT said, "I'm not sure what they mean by 'lowering the costs."'
He said if the merchant received a benefit from the Durbin Amendment, the new FANF and revised fee schedule probably costs less than what the merchant was paying before the amendment went into effect.
However, he offered this analysis pertaining to APF savings, "Let's say an average merchant does $96,000 annually, at a $50 average ticket. That works out to $8,000 a month and 160 tickets. Let's say half those tickets are signature debit. So they saved on 80 tickets a total of 40 cents. If they have one location they are paying a $2 FANF fee. If 10 percent of their tickets fell to non-[card present] categories, or 16 tickets, they pay another $1.60.
"There could be some sort of effort to incentivize the merchant, but if this is purely a math exercise, if a merchant is comparing March to April's costs, this shows costs went up $3.20 a month."
CLEARENT called Visa's explanation "confusing at best, as the numbers alone don't confirm what they claim is behind this - incentives to the merchant."
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