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The Heat Is On To Navigate Rising Credit Card Costs

Are your customers paying with a credit card? If so, it’s going to cost them…a lot more.

Trying to pay with a credit card has become much more expensive these days. Businesses, in an effort to offset the numerous fees they must pay on credit card transactions, are charging their customers a fee for all credit card purchases. Incentives include offering discounts if they pay with debit cards, checks, or cash.

Merchants, still reeling from the financial hit due to the pandemic, are desperate to find ways to make up for lost revenue. 

Fees, Fees, And More Fees

Typically, credit card companies charge between 1.3% and 3.5% in processing fees for every credit card transaction. It all depends on the network (e.g., Mastercard, Visa, American Express), the type of credit card used, and the merchant category code of the business. 

There are two types of fees that credit cards charge for every transaction: assessment fees and interchange fees. They are referred to as a base cost or the discount rate. These fees are non-negotiable. The fees go to pay the following:

  • Interchange fees: The bank that has issued the credit card gets the interchange fee.  
  • Assessment fees: The payment network (e.g., Visa) gets the assessment fee.
  • Payment processing fees: These funds are paid out to the company that takes the credit card payment and sends this transaction to the payment network. This can be via a physical card reader or an online payment gateway. 

Depending on the payment processing company, the costs for using this service can include: 

  • A Per-Transaction Fee
  • A Monthly Service Fee
  • The price of the equipment used to process all transactions

Visa And Mastercard Postpone Merchant Fee Hikes Till Next Year

Visa revealed changes in its interchange rate for card-not-present transactions (e.g. online or by phone) in which the rates will be higher. For a “traditional” Visa card, the fee for a $100 transaction would rise to $1.99 from $1.90. When it comes to “premium” Visa cards, the fee would go up to $2.60 from $2.50. 

However, these changes were no longer set to take place in April of this year, as originally planned, but the following April in 2022.

In an e-mailed statement the company announced the reason for its decision:

“Visa is committed to maintaining stability in our payments system and will not make any future rate changes in the U.S. for another year while the economy recovers,”

This decision was surely in reaction to pressure from retailers who have been requesting that networks delay these increases. At a time where consumers are mostly reliant on online shopping, they certainly don’t want to suffer the impact of higher costs for credit card processing. 

Senator Dick Durbin, an Illinois Democrat, along with U.S Representative Peter Welch, a Democrat from Vermont, wrote a letter to the card networks’ CEOs:

“We urge you to call off these planned fee increases. Our nation is still reeling from the ongoing pandemic”.

Mastercard has followed suit, delaying its plans to hike up its fees. The network expressed that it would “continue to be thoughtful” about its timing of carrying out its changes. 

Mastercard released a statement:

“Mindful that some merchants are still facing unprecedented circumstances, we are delaying our previously announced interchange adjustments”. 

Out Of The Woods…For Now.

According to Julie Chariell, senior industry analyst, and Meryl Thomas, associate analyst, for Bloomberg Intelligence, it was “wise” for both Visa and Mastercard to postpone the increases in interchange fees till next year. They also believe that both were trying to avert loss of market share, “legislative fee caps”, and merchant litigation.

Regardless of the reason, both merchants and consumers can breathe easily, for now.

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