No end in sight, European merchants continue to be plagued by excessive card fees.14th March 2018
What do the latest April 2018 increases from Visa mean for merchants?
Visa’s announcement that its European scheme fees will increase as of April 2018, is the latest in a series of significant fee increases that impose higher costs of payments acceptance on merchants. The schemes are signaling that further increases are also in the pipeline, leaving merchants wondering: what can we do?
CMSPI has seen first-hand the impact that scheme fee increases can have in the USA. Having already applied price increases in the States, the schemes are now looking to do the same across Europe.
In January 2017, Visa increased the percentage element of the fees, affecting those with high average transaction values. This April, Visa’s latest scheme fee increases will affect the per item charge, which will be particularly hard-hitting for smaller ATV merchants, many of whom will see six-figure increases to their merchant service charge (MSC). See below a graph displaying how merchants of differing profiles will be affected by the April 2018 increases.
Figure 1 : Visa Scheme Fee Increases: April 2018
Overall, CMSPI estimates that average fee increases have risen by between 50-60%, which is an addition to the estimated 30% increase following Visa’s January 2017 announcement. If history is anything to go by, it is likely that more increases will follow and merchants across Europe should be concerned. We believe these fees are simply tools designed to increase profit, a worrying thought when we consider that both Visa and Mastercard already record profit margins in excess of 50% (compared to an average of just 5% in the merchant community). Visa and Mastercard continue to add new and amended scheme fees – in Europe and elsewhere – and merchants continue to be offered no protection from this by regulatory bodies or legislation. This needs to change, but in the meantime, merchants must find ways to mitigate these fees.
What can merchants do?
Merchants must ensure that the acquiring industry is passing on increases fairly. To do this, merchants need to understand the underlying scheme fees charged to their acquirer by Visa. This can be difficult because the underlying fees are opaque.
Merchants may also wish to use local debit schemes in Europe, where possible. Compared to Visa and Mastercard, local debit schemes typically operate on a cost-recovery basis. This means that Visa and Mastercard scheme fee increases will hinder the attractiveness of multinational acquiring solutions, which typically can’t accommodate local schemes. Many large acquirers are keen to develop multinational acquiring and may find this a significant barrier.
The new fees being introduced by Visa in April 2018 will have a significant impact for merchants with low ATVs, who could see their scheme fees increase by as much as double. However, evidence suggests that it is unlikely that the schemes will stop here. It is essential that European merchants have a strategy in place for mitigating the impact of scheme fee increases, including negotiating fees with their acquirer, encouraging local debit schemes, and looking at their options with respect to the new PISP model.