Blog June 15th 2021

U.S. Payments Acceptance Costs Set to Double by 2025

CMSPI analysis suggests that the average cost of payments for U.S. retailers will have doubled between 2009 and 2025 (Figure 1). In this article, we discuss how fee increases, a shifting payments mix, and a pandemic have combined to create the perfect storm - and what merchants can do about it.

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Martha Southall

Global Insights Manager

CMSPI analysis suggests that the average cost of payments for U.S. retailers will have doubled between 2009 and 2025 (Figure 1).

In this article, we discuss how fee increases, a shifting payments mix, and a pandemic have combined to create the perfect storm – and what merchants can do about it.

Figure 1. Weighted average cost of payments acceptance (CMSPI estimates)

The rising cost of payments

In our recent report, CMSPI estimated that announced changes to interchange fees for 2021-2022 by the global card networks would cost retailers over $1bn annually. Rising payments costs are nothing new to U.S. merchants; the weighted average cost of acceptance is expected to have doubled from around 0.8% in 2009 to over 1.6% by 2025 (CMSPI estimates).

For an average retailer, whose pre-tax operating margin typically sits below 5%, an increase of 80 basis points to one cost item is a significant blow. In fact, payments are generally already a firm’s third-largest cost item after labour and premises.

However, rising payments costs are not a problem solely for merchants. As outlined in CMSPI’s Global Review of Interchange Fee Regulation, the evidence suggests that the majority of savings from card fee regulation have been passed on to consumers in the form of lower prices. Studies across U.S. and European merchants (see European Commission Study on the application of the Interchange Fee) point to a pass-through rate of 71%, making rising acceptance costs a concern for retailers and consumers alike. Fee increases, however, are only one part of the story.

A changing payments mix

In the U.S., the 2011 Durbin amendment capped interchange fees for debit card transactions at 0.05% + 22c per transaction for issuers with assets over $10 billion. The regulation also mandated that all cards be co-branded with at least two non-competing networks, allowing merchants to take advantage of the huge savings available from dynamic least-cost routing.

How, then, have merchants seen such drastic increases to their costs at the macro level? Part of the answer lies in a pivot away from cheaper payment methods, such as cash, and towards higher cost methods such as credit cards. Figure 2 illustrates this trend, which predates – but has only been accelerated by – the COVID-19 pandemic.

Figure 2. Cost and growth of merchant tender types 2019-2020 (CMSPI estimates)

Buy Now, Pay Later (BNPL) provides the perfect example of this pattern. With average merchant fees at around 3.5% (CMSPI estimates), BNPL is one of the most expensive payment methods that a merchant can accept. It is also gaining market share rapidly, with growth of over 350% between 2019 and 2020. Merchants’ concerns with BNPL surround not only its fees, but also its role within the payments market more broadly. BNPL providers tend to target credit-averse millennials. This approach means that, somewhat counterintuitively for a credit-based product, BNPL often displaces debit expenditure in the market. It is this combined threat of higher fees and reduced debit spend that merchants need to balance against quantified benefits to customer demand, particularly when faced with attractive introductory offers from players looking to build critical mass in the U.S. market.

The COVID-19 effect

So, can merchants keep costs low if they retain a high proportion of debit transactions, and route each of these optimally? Not necessarily. One impact of the covid-19 pandemic that has been felt by retailers globally is the seismic shift to ecommerce. Moving large volumes online brings with it a host of payments challenges – lower average approval rates, greater fraud risk, and higher headline fee rates to name but a few. However, it also notably affects routing choice; whilst merchants can take advantage of PIN authentication to route their in-store transactions down the least-cost network, they are reliant on PINless debit for least-cost routing online. However, restrictions on PINless debit make routing much more challenging in this environment – a reality which likely falls under the umbrella of the Justice Department’s ongoing investigation into Visa’s practices (source).

What can be done about the rising cost of payments?


For merchants caught between rising fees, a changing payments mix, and a retail market in flux, an optimised payments strategy has never been more critical. Firstly, retailers need to ensure that all fee changes – including the numerous changes so far announced for 2021/2022 – are passed through correctly. Moreover, utilising data insights to ensure that all new payment methods are right for their specific customer base and needs will mean that merchants don’t fall foul of a payments mix increasingly dominated by high-cost options. Finally, retailers need to be taking advantage of the current regulation on card fees; in the PIN debit space, dynamic least-cost routing has been able to generate 7-figure savings for CMSPI’s merchant partners.


Although the 2011 regulation was positive for merchants, its benefits only currently extend to a subset of transactions. The final piece of the puzzle therefore lies in advocating for a fairer payments landscape across all payment types and channels – from BNPL to PINless online. This means proactive regulation that injects true competition into each market, ensuring that costs stay in check, innovation remains high, and barriers to entry are lowered. In the long-run, only this can solve the market failures that are so ubiquitous within payments, and are ultimately felt most keenly by merchants and their consumers.

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