The self-proclaimed breakthrough in credit-card interchange fees might only yield marginal savings for merchants, perhaps a few hundred dollars annually at best.
In what is being touted as a significant development that supposedly marks a closure to almost two decades of litigation, Visa Inc. and Mastercard Inc. have reached a settlement with U.S. merchants to adjust credit-card interchange fees. This adjustment, agreed upon in a overhyped settlement touted as one of the largest in U.S. antitrust history, involves a reduction of published credit-card interchange fees by four basis points in the U.S. for a minimum of three years, alongside a pledge not to increase interchange fees for five years beyond the 2023 rates.
While this change is a move towards transparency and fairness in credit-card fee structures, industry experts like Jeremy Lessaris, founder and CEO of Payment Brokers, offer a critical perspective on the real impact of these adjustments. “A four basis point reduction barely scratches the surface when considering the overall fee landscape,” Lessaris points out. “”For a business processing $1.2 million annually the savings would be a measly $480. It’s imperative to look beyond the major card networks and put a magnifying glass on the impacts of credit card processing companies.”
While the spotlight is often on Visa, Mastercard, and American Express, processing entities like FiServ, Global Payments, and Elavon to name a few, also play a pivotal role in the fee structure. Jeremy continued “We’ve encountered merchants paying upwards of 150 basis points, or 1.5%, over these newly reduced interchange fees, which doesn’t even account for additional per-transaction fees and monthly charges that we believe disproportionately affect small and medium-sized companies. The buck doesn’t stop there, this is getting passed down to consumers in one way or another.”
The settlement also introduces modifications aimed at enhancing consumer and merchant interactions. Simplified surcharging rules and new steering policies could potentially offer merchants more flexibility in managing card acceptance. Yet, as Lessaris notes, the real challenge lies in transparency.
“Steering”—encouraging customers to use cash or less rewarding cards (also called cash discounting)— only makes matters worse. Consumers prefer rewards, whether it’s cash back or travel points. Lessaris notes that efforts to combat these rewards don’t significantly influence consumer behavior or the broader fee structure. Secondly, outside of American Express, there is no way to identify what a card interchange rate is just by looking at it. Lessaris continued “In our analysis, we’ve seen the average net effective rate for a significant portion of transactions hovers around 2.5%, although this rate can be considered on the higher side depending on the card mix. Larger merchants often experience lower rates, with figures around 1.8%, though this can vary depending on the mix of cards used. The practice of “steering” and “cash discounting” introduces a different dynamic, where processors and ISOs can impose charges up to 3% on consumers. This practice not only inflates the total charges by an additional 0.50% but also disproportionately affects debit card transactions, escalating the costs by almost 2% compared to interchange.
The narrative around the settlement and its anticipated $30 billion in swipe fee savings should also be scrutinized. “While the figure sounds substantial, it’s essential to contextualize these savings against the backdrop of global transaction volumes,” Lessaris adds. “When you put the $30 billion against global transaction volumes, the figure loses its luster, and when you divide that total among over 30+ million companies in the US we are talking about an average savings of $2 per month over 5 years” Lessaris remarks.
As the industry moves forward, Payment Brokers stands as a beacon for transparency and advocacy in the payment processing space. Founded with the mission to clarify interchange fees and empower smaller businesses to negotiate fair terms, Payment Brokers is committed to creating a more equitable and transparent marketplace. “Our goal is to ensure that businesses, especially smaller companies, don’t just survive but have a level playing field on fees that impact their bottom line the most,” concludes Lessaris.
