Summer’s Heat Is on Card Costs

You could be forgiven for neglecting the battle between merchants, on the one hand, and banks and payments networks on the other, over acceptance costs for payment cards. After all, the conflict is a long-running affair, and other issues have crowded onto the scene in recent months.

But this summer that battle has grown more intense. And while much of the focus in recent months has been on debit card costs, credit cards have also crowded into merchants’ cross-hairs.

You may recall the two big networks, Visa and Mastercard, last year were all set to make some adjustments in their credit card rates for 2021 after laying off any changes in 2020 in recognition of the economic pain inflicted on businesses by the pandemic. The adjustments raised a bunch of rates and lowered a few others, with a net impact of raising overall annual interchange-fee revenue for issuers by some $889 million, according to estimates by CMSPi, a retail-payments consultancy.

Well, the two global networks postponed the rate changes again, this time to April 2022, and many observers figure they mean it this time. So, short of going to court, what can sellers do about the expected rate jumps?

Surcharging is one answer, and it’s legal now in 48 of the 50 states (Acquiring, this issue). Acquirers have been happy to offer the tech that allows merchants to add on a bump for credit card acceptance, and no less a merchant than Amazon last month imposed a surcharge on Visa transactions in Singapore.

Other firms argue the solution lies neither in litigation nor in surcharging, but in technology. Their answer: replace credit cards with something a lot less expensive to accept. An example is Facepay Inc., which this summer made generally available a service aimed at replacing credit card payments with direct bank transfers from customers’ accounts.

Ideas like this have cropped up before, but have generally failed because of their inconvenience for the customer. But Mountain View, Calif.-based Facepay, whose merchant base is largely concentrated among auto-shop owners, says its technology can ease the transition away from credit cards. The bank transfers will save repair shops anywhere from 5% to 10% of profits that otherwise would have gone to interchange, Facepay contends.

The company points to the impact of the Covid-19 pandemic and that looming $889-million cost increase. “The time to prepare is now. It will erode all profits,” a company executive warned in a press release.

That may sound dramatic. But as the long battle over card-acceptance costs—for credit and debit—wears on, costs mount, tempers flare, and gears are turning to find a way out.

—John Stewart, Editor, john@digitaltransactions.net