The global card networks, only weeks before the pandemic began, announced significant and sweeping adjustments to interchange charges for merchants, affecting many industries such as general retail, grocery, restaurants, and convenience, but amidst pressure from merchants, regulators, and the pandemic, delayed much of them in both 2020 and 2021.
However, this coming April, the global networks have signaled that they plan to move ahead with the remaining interchange changes that haven’t yet gone through, as well as further, multifaceted changes to other fees for online merchants. Below is a breakdown of the key changes coming this April that will affect the cost of payments acceptance for merchants and consumers.
The changes coming in April 2022 are quite complicated, but only affect consumer credit card transactions within the programs outlined below. While these are the largest changes coming, it is not an exhaustive list, and there are other smaller changes coming as well. CMSPI estimates that the total impact of these changes are $475 million in annual increases. Bringing the whole picture together, $475 million from Visa and Mastercard is added to the changes that went into effect last year from Visa, which CMSPI estimated to be worth $698 million dollars, and a grand total of $1.17 billion in increased fees for merchants annually.
Visa has announced that along with these changes, they are also decreasing rates for “Small Businesses”. More specifically, Visa is decreasing Product 1 and Product 2 program rates by 22 basis points standard across all card types for businesses with less than $250k in Visa credit card spend. While this change could be substantial for certain businesses, some verticals have been seemingly left out, such as gas stations and grocery stores according to publicly available interchange rates from Wells Fargo. there is still a lack of clarity around how merchants will qualify for and realize the benefit purported by Visa. Despite all of these caveats, CMSPI estimates that in the best-case scenario, this change will only reduce the impact of the other changes by less than 15%, leaving still a substantial sum of increases for merchants in the U.S.
Mastercard Digital Enablement Fee
Along with the interchange changes, Mastercard has also announced its intention to increase the Digital Enablement fee, which applies to all online spend through the network. Currently charged at 0.01% on all sale transactions, Mastercard is firstly changing the fee to occur on all authorizations instead, meaning this fee will occasionally be charged on a transaction where no final sale is made. For example, this fee will still apply even if a transaction is declined, or if a consumer cancels a purchase before the good is shipped. They are also doubling the fee from 0.01% to 0.02% and implementing a minimum charge of $0.02 per transaction. While the fee doubling is already a substantial change, the minimum charge will apply for all transactions under $100 made online, meaning that the smaller the transaction, the larger the charge. For example, a $20 t-shirt ordered online will see a 10x increase in this fee, and a $5 hamburger ordered through an app will see a 40x increase, making smaller ticket merchants extremely vulnerable to the change.
Digital Enablement Fees
Mastercard is along with the changes above bundling various services they currently offer into the fee increase, such as the AVS/CVV2 , the auto billing updater, and the 3DS 2.0 charge. While these fees being removed will mitigate the increase for some merchants, CMSPI analysis suggests that many will still see a substantial increase as a result of this change, resulting in an impact of $82 million annually.
Next Steps for Merchants
Ultimately, the fee changes coming in April show just how difficult to understand payments costs are becoming across the U.S. in the wake of the pandemic, affecting every industry. While retailers have been adapting to the payments challenges of a digital world, these changes add additional complexity; savvy merchants will be considering strategies to mitigate the changes, but they need to be quantified by every business as they could significantly impact budgets in 2022. For more information about these changes, including how they will impact your budget and strategies to mitigate this, please get in touch with CMSPI.