By Ken Musante
Napa Payments and Consulting
Visa and Mastercard have been inserting fees and increasing others so that the total paid to the card networks is far in excess of the traditional assessments. Many newer fees are designed to shape behavior and are dependent on merchant actions and the solution provider's capabilities.
Merchants, especially large merchants, must be more aware of these fees and ensure solution providers assist in minimizing or avoiding them. They also must consider these fees—in addition to interchange, processor discount and related fees—when considering total payments costs. Payfacs and platforms also need to be aware of these fees and ensure they are properly accounted for and billed to the ISO or merchant responsible for the activity.
To be fair, Discover and American Express have these fees as well; however, because they represent a smaller percentage of total processing, the non-interchange and penalty fees are correspondingly less, but merchants and payfacs should consider them with their strategy and solution selection.
Merchant fees are complex. Many single pricing solutions like Square have gained market share by providing merchants simplified pricing. However, these solutions are typically more expensive. Simplified pricing solutions understand interchange and price merchants to ensure all costs are covered. These solutions also benefit from returns: they typically do not refund merchant fees in the event of a return or chargeback, even when interchange is returned to them.
But even for single pricing solutions, non-interchange and penalty fees make pricing more complex, and these increasing fees now represent a meaningful amount. More importantly, they aren't the same with every acquirer. It depends on the solution provider's capabilities.
Despite their complexity, interchange fees are publicly available and better understood than non-interchange pass-through fees. Merchants generally understand interchange is based on card type, merchant category code, method of entry and data transmitted with the transaction.
No schedule for non-interchange fees is publicly available from either card network. There isn't even a common name for them. Some describe them as "pass-through fees," but in that context, they are akin to interchange—and these are not interchange. Interchange is paid 100 percent to the card issuer. These fees are paid to the card networks.
The most notable, non-interchange fees are the assessments, which are 0.13 percent to 0.15 percent of gross volume. Likewise, there is an acquirer processing fee (APF) and network access brand usage (NABU) authorization fee of $0.0155 to $0.0195 for every authorization. Cross-border fees represent over 1 percent for U.S. merchants for every non-U.S. transaction. Both Visa and Mastercard also have monthly fees. These fees are all relatively more known.
Not so well known are non-interchange pass-through fees (NIPTF), which are more sinister and growing. I say "sinister" because they can represent an enormous amount of a merchant's fee, and dozens of these fees are added without the semiannual press releases that accompany interchange modifications. The table accompanying this article provides several examples. The entire list is much longer.
I've seen instances where merchants generated over tens of thousands of dollars in these fees. Merchants not using tools to ensure authorization fidelity or merchants utilizing dispute services are more apt to suffer these fees. For example, merchants who haven't set their gateway to exclude "hard declines" from recurring transactions will incur these fee types.
Merchants not attending to their authorization hygiene will produce many inadvertent NIPTFs such as the "Misuse of Auth Fee" and similarly situated fees. Merchants not properly managing their dispute process may fail to actively accept incoming compliance or pre-arbitration cases. When that occurs, the dispute may kick over to an arbitration case; merchants are unknowingly finding themselves in arbitration and losing the case in addition to the significant card network NIPTF referenced above.
NIPTFs are large and growing. Merchants need to understand them and recognize that not all processors or gateways are equipped to minimize them. Platforms and payfacs must understand how these fees are applied and ensure they are properly conveyed and debited to the appropriate end merchant so as to not unnecessarily absorb them. Sales professionals need to assist merchants in reviewing their statements and placing them with the payfac or processor who can mitigate the impacts of these fees. 
As founder of Humboldt Merchant Services, co-founder of Eureka Payments, and a former executive for such payments innovators as WePay, a division of JPMorgan Chase, Ken Musante has experience in all aspects of successful ISO building. He currently provides consulting services and expert witness testimony as founder of Napa Payments and Consulting, www.napapaymentsandconsulting.com. Contact him at kenm@napapaymentsandconsulting.com 707-601-7656 or www.linkedin.com/in/ken-musante-us.
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