Are scheme fees really a “straight pass-through” cost?

23rd May 2018
Wayne Ashall
Wayne Ashall

Scheme fees have always been concerning for the merchant community. Technically, scheme fees are paid by acquirers to card schemes to compensate them for the role that they play within the card system. In practice, these fees are passed on to merchants and can be charged by acquirers in two ways – as part of a bundled merchant service charge which includes interchange fees (paid to issuers) and acquirer fees, or split out and charged on a transactional basis in what is referred to as an interchange++ charging model.

In recent months and years, we’ve seen evidence of Visa and Mastercard increasing existing fees and adding new or amended with increasing frequency. These increases have hit merchants hard, with many left wondering how they can mitigate against substantial six or seven-figure increases.

As scheme fees continue to grow in number, complexity and cost, it’s no surprise that merchants are struggling – with many merchants seeing fees applied inconsistently or incorrectly on their invoices. We’ve compiled a list below of ten reasons scheme fees are extremely complex for acquirers, and why because of this, merchants are unlikely to receive a direct pass through cost.

10 reasons why scheme fees cannot be a “straight pass-through” cost…

1. Underlying scheme fees (charged by schemes to acquirers) are growing exponentially, with a staggering 70 different individual fees at the latest count.

2. Scheme fees are applied on an ever-growing list of transaction types which vary by card type, card region, channel type and more. Mastercard, for example, charges a chargeback dispute resolution fee of €15 for reviewing chargebacks.

3. Scheme fees are applied on a flat rate for some transactions and a tiered rate for others. Tiering has reduced by recent changes but hasn’t been eliminated altogether.

4. Scheme fees are applied on a ppt (pence-per-transaction) basis for some transactions, but ad-valorem for others.

5. Some underlying scheme fees are settled daily, weekly, monthly or quarterly.

6. Some underlying scheme fees are charged in dollars or euros.

7. Previously, domestic and intra-regional (EEA) pricing was identical however, this has been amended as of April 2018 and an additional premium for intra-regional transactions will now be applied.

8. Some schemes still treat acquirers differently, whether due to ‘on-us’ licenses or volume tiers.

9. Some merchants have direct scheme relationships to subsidise scheme fees.

10. Schemes are constantly attempting to balance their income between merchants and issuers.

In Summary

Scheme fees continue to be an extremely controversial topic throughout the merchant community. Underlying scheme fees are charged to acquirers in complex ways, and this is having a direct impact on merchants. The way acquirers choose to pass these fees on to merchants is a commercial decision, and is something that all merchants need to be aware of. As with any process with huge complexities there are opportunities for errors, and at CMSPI we’ve seen evidence of scheme fees being passed on incorrectly. Merchants must ensure they are regularly reviewing their invoices, have full visibility of charges, and are actively looking for ways to mitigate these increases.

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