Higher Fees Could be Rainmakers for the Bank Card Networks

More information is trickling out about new transaction fees planned by Visa Inc. and MasterCard Inc. While the main ones are slightly under 2 cents per affected transaction, when applied to the vast stream of bank card purchases they could produce more than $600 million in new revenues for the networks. Merchant-acquiring experts expect their merchants to bear the cost of these fees because, like interchange, which is charged to acquirers and paid to issuers, acquirers will simply pass them through to their clients. “The ones we've talked to aren't too excited about it,” says an acquiring executive who asked for anonymity. “It's one of the bigger fee hikes.” The executive says one of his larger merchants believes the fees will cost in the “six figures.” On April 17, MasterCard will impose its new “Network Access and Brand Usage Fee,” or NABU (Digital Transactions News, March 2). The 1.85-cent fee technically is a settlement fee that will replace a current half-cent fee charged to acquirers, according to the industry source. The new fee thus is 3.7 times higher than the fee it replaces. Visa on July 1 will impose a 1.95-cent authorization fee it calls the “Acquirer Processing Fee.” It too replaces an existing half-cent fee. But Visa also is planning other new fees. Acquirers that get an authorization but don't follow through with a settlement within a specified time frame could be hit with a new, 4.5-cent fee. According to the acquiring source, Visa has two names for it: an “Unmatched Authorization Fee” or a “Misuse of the Authorization Fee.” Authorizations without settlement can indicate risk or other problems. There are legitimate uses for authorization without settlement, however, such as a magazine publisher charging a subscriber's card just once a year but doing small monthly authorizations to make sure the subscriber's card account is good. But many merchants don't have the operational capability to initiate a reversal within the permitted time frames and thus are likely to get hit with the fee, the source says. Visa also will start charging a 10-cent zero floor-limit fee for unauthorized transactions submitted for settlement, according to the source. This charge would affect few merchants, however, because probably more than 95% of U.S. card transactions are electronically authorized. Visa would not comment in detail about the fees but provided a written statement. “Visa Inc. regularly reviews its pricing, as any business would, and makes adjustments where appropriate depending on such factors as the value delivered to clients and the need to be competitive,” the statement says. “Over the years, Visa has become a symbol of international acceptance, reliability and convenience, based on its commitment to provide superior value to clients. These clients, in turn, are able to offer competitive products and services to their customers. Financial institutions set their pricing to cardholders and merchants.” MasterCard's existing half-cent fee would have grossed $68.6 million in 2008 assuming it applied to all of MasterCard's 13.7 billion U.S. credit and debit card purchase transactions, Digital Transactions News estimates. Applied to the same volume, the coming NABU fee would have raised $253.9 million, for a net increase of $185.3 million. Visa's half-cent fee would have raised $149.2 million had it been applied to all of Visa's 29.8 billion U.S. credit and debit card purchase transactions in Visa's fiscal 2008 ended last Sept. 30. The new Acquirer Authorization Fee would have grossed $581.7 million on the same transactions?assuming that those authorized but not settled are excluded?for a net increase of $432.5 million. Together, Visa and MasterCard thus might have netted $617.8 million in new revenues had the planned fees been in place last year. Acquirers contacted by Digital Transactions News say neither card network gave them reasons for the higher fees. Some executives believe Visa and MasterCard are trying to keep revenues up to please Wall Street now that they are publicly held. “This is the first time we've seen a move by the new, public Visa and MasterCard companies to be more profitable,” says Henry Helgeson, president and co-chief executive of Merchant Warehouse, a Boston-based independent sales organization.