The story so far…
In 2020, Visa and Mastercard announced sweeping changes to their interchange programs that would affect every retailer in the U.S. to varying degrees. Following the outbreak of the Covid-19 pandemic, both networks delayed their changes until the end of April 2021. However, as it became clear that the pandemic was still a challenge for merchants coming into April 2021, Visa and Mastercard faced increased pressure from merchants, trade bodies, and lawmakers such as Senator Richard Durbin (D-IL) to delay them even further. In mid-March, following a letter from Senator Durbin and Congressman Peter Welch, both networks announced that they would delay the changes again to April 2022.
CMSPI estimated the total annual impact of these changes to be $842 million for Visa and $329 million for Mastercard, so the announcement was a welcome relief for many. However, the communication of the changes to merchants by their processors in the following weeks told a different story; while Mastercard appears to have delayed all of their changes until next year, it appears only a small number of Visa’s changes will be delayed beyond April 2021.
Are any of Visa’s changes being delayed?
The two major changes for which Visa announced delays are Product 1 increases and Non-Qualified Consumer Credit increases. Product 1 is the new name given to what is currently termed “CPS- Card Not Present”, Visa’s general retail Card Not Present program. As most industries aren’t given a specific online program, most merchants’ online transactions go through Product 1 by default.
In contrast, Non-Qualified Consumer Credit is a program that applies to downgraded transactions, referring to those which don’t meet all the qualifications to achieve the lowest possible interchange rate, such as settling within 24 hours of the authorization, or if the MCC doesn’t match between the authorization and the settlement.
While this increase was indeed delayed, most of the damage involving downgraded transactions was already done with the elimination of EIRF (Electronic Interchange Reimbursement Fee: this Visa program functioned as a middle point between fully qualified and fully downgraded and allowed for merchants to mitigate some of the costs of downgrades such as settlement timescales) last year. Visa also delayed 2 other changes: Account Funding and Consumer Bill Pay Services. These changes are much less severe and affect a small subset of transactions compared to the previous two. In total, CMSPI estimates that, based on pre-pandemic volumes, these delays account for only $144 million of the total change.
Which changes are going ahead?
We understand that most of the expected changes – and their associated cost – are still going ahead. Included within these changes are the large restructure to restaurant Card Present and Card Not Present rates, the change to small ticket transactions, various commercial card changes, and a smattering of other changes to smaller industries. CMSPI estimates that these changes could cost merchants an extra $698m annually.
What does the news mean for merchants?
The splitting of Visa’s changes, with most being implemented this year and some being delayed until next April, increases the complexity of the changes as a whole and the resultant effect on each individual merchant. With complexity comes errors; CMSPI finds errors in 50% of the invoices we audit. With the Visa revisions due this month, updated analysis of your transaction distribution is therefore of the utmost importance. Starting next month, a full comprehensive review of pass-through interchange costs must also be completed to ensure that all the changes were implemented correctly.