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Visa USA changes interchange fee structure to encourage usage; overall rates go up

Visa Inc. is planning a major change in their interchange (IC) fee structure to encourage payment card usage and reduce the amount of check usage. The plans have been confidentially circulated to the banks, but inevitably Bloomberg managed to get: 1) a copy and 2) comments from banks and retailers. Rates are lowered for some businesses and increased for others:

  • E-commerce will pay more
  • Merchants in real estate and education will pay less.

The IC cost to retailers has been going up year after year as the Nilson Report chart below shows:

The new rates will be rolled out in April and October 2020.

Examples of the new Visa published IC rates include:

  • For a $100 transaction on a standard Visa card increases to $1.99 from $1.90; while for premium Visa cards, the fee will rise to $2.60 from $2.50.
  • For $50 transactions on a premium card the charge will decrease by 33% to $0.77 from $1.15

As always, banks and payment networks can negotiate one-on-one deals for lower pricing.

Global card usage

Although Deutsche Bank researchers think, see, that payment cards are in long term decline, other researchers like The Nilson Report are predicting major growth as the chart below shows:

And Visa’s number of merchants in 2019 grew by 14% to 61 million.

What is clear is that there is a battle between the different payment systems:

  • Cash v. the rest: cash will probably survive because it will be protected by the authorities and governments
  • Payment cards v. checks/cheques which will disappear eventually but not quickly as the UK found when they tried to get rid of them in 1990s:
  • Payment cards v. ACH/giro instant payments: this is where the card schemes are vulnerable.

Other card schemes

MasterCard had, according to Bloomberg news, no immediate comment on their plans for a new IC fee structure. But they, and the other card schemes, must be feeling the same pressures and the need to expand the usage of their cards too. So corporate treasurers can expect their costs from IC fees to remain the same or slightly increase. The banks are not going to give up their IC fee income which is now more than they make on credit card loans.

CTMfile take: Some variation of the new IC fee structure, that Visa USA has just introduced, will be rolled out by all the other payment card organisations worldwide. Corporate treasurers will complain to their banks, but payment card IC fees will just increase over the next 12 months unless corporate treasury departments can migrate payments to other cheaper forms of payment, such as payment through the local ACH.


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