Interchange fees are set by each card brand (Visa, MasterCard etc.) as a transfer fee between acquiring banks and issuing banks for every credit card transaction. These fees are used to assess charges for merchants and are usually adjusted each year in April and October. The April 2021 scheduled increase has been postponed to April 2022!
This is great news for most merchants. The card brands realized that the economic recovery from the COVID-19 pandemic is in a fragile stage. As such, both Visa and MasterCard have decided to delay increases.
Chosen Payments clients are on a rate plan known as Interchange Plus. That means, we take the Interchange rate and add a small percentage for our services. When the Interchange rate goes up, our mark-up remains the same. Because of this, any interchange rate increases will have a direct effect on bottom line profitability.
The delayed fee increases in the plan included proposed increases that significantly increased fees for card-not-present transactions (CNP) such as online purchases, eCommerce, and phone orders. For a typical Visa card, the effective rate on a $100 charge was set to rise to 1.99% from a current average of around 1.90%. For a high-end Rewards Cards, the rate would have risen to around 2.6% from a current effective rate of 2.5%.
This Interchange rate increase would have disproportionately impacted online e-commerce merchants. These merchants are the ones who saw increases in sales due to the pandemic as people quarantined at home and shifted buying habits. Sen. Richard Durbin (D., Illinois) and Rep. Peter Welch (D., Vermont) sent a letter to the CEO’s of MasterCard and Visa asking them to reconsider the Interchange fee increases in light of COVID-19’s detrimental effect on companies.
Interchange fees are set by card brands through a maze of relationships between banks, merchants, and card associations. The card brands proposed the Interchange increases to recover increased expenses for fraud mitigation and security challenges associated with the recent pandemic caused boom in eCommerce and online transactions.
If you accept credit cards in your business, you can breathe a sigh of relief that you won’t be impacted by any rate increases from Visa and MasterCard in the year of 2021. If you have not participated in a rate review in the past year, now is the ideal time. Chosen Payments will provide you with a side-by-side comparison of your current provider fees against our transparent Interchange Plus pricing model. Call Chosen Payments today at 855-4CHOSEN. If we can’t save you money, we will give you $500 for allowing us to do the rate comparison.