Most US merchants will experience increased rates and fees, however the nature and extent of the impact will vary depending upon a merchant’s size, transaction mix and industry.
Effective April 2022, VISA, Mastercard, American Express, and Discover are implementing new rates and fees for US merchants. This move was widely anticipated as a number of rate and fee changes the card brands had planned over the last two years were postponed to allow the US economy to recover from the pandemic.
New interchange rates, assessment fees and transaction fees are being introduced. According to VISA and Mastercard, the new interchange rates, which include both increases and decreases, will help make small businesses more competitive with large retailers. They also say their increased fees will go towards fraud prevention and innovation, which are needed because of the rise in fraud that has accompanied the pandemic driven growth of ecommerce. Discover is also increasing its assessment fee and interchange rates, and American Express is making changes to its Opt Blue program for small businesses.
Key takeaways are as follows:
VISA and Mastercard are changing some consumer card interchange rates, but business card interchange rates are unchanged. While some rates will go up, others will go down. In particular, Mastercard is lowering the interchange rate on all consumer credit transactions less than $5, and VISA is introducing new, lower interchange rates for very small merchants that have $250 thousand or less of consumer credit card transactions in a year. VISA says more than 838,000 businesses – over 90% of US small businesses – will benefit from fee reductions of 10%.
Merchants with card not present (CNP) transactions will pay higher fees to VISA, Mastercard and Discover. CNP transactions tend to have a higher fraud risk than transactions in which the card is physically on-premises and can be swiped/chipped at the point-of-sale.
- VISA is increasing interchange rates for certain non-tokenized consumer credit CNP transactions by 10bps, but merchants can avoid the increase if the transactions are processed using a VISA EMV Payment Token. VISA is also introducing a $0.001 fee on all card not present transactions where address verification service (AVS) is requested.
- Mastercard is increasing its digital enablement fee from 0.01% to 0.02% (with a $0.02 minimum and a $0.20 maximum billing amount).
- Discover is introducing new fees including a digital investment fee of 0.01% on all keyed card present and card not present sales, and an AVS fee of $0.005 per request.
The news for small merchants is mixed. On the positive side, VISA will charge lower interchange rates for very small merchants. In contrast, small businesses will be paying higher American Express fees as AMEX is increasing fees for its Opt Blue program, which is for merchants with less than $1 million of AMEX transaction volume a year. This includes an increased assessment fee, a new transaction fee on all credit and prepaid card sales, and changes to the tier structure which will effectively increase discount fees.
Overall, the interchange rates VISA and Mastercard will charge on “nonqualified consumer credit transactions” is significantly higher, making downgraded transactions more costly for merchants. Downgrades occur when a business authorizes and settles a transaction in a way that fails to pass all the data required by the interchange qualification guidelines. Downgrades can also occur if a merchant authorizes a card but fails to settle the transaction within a specified time window. Transactions which are downgraded are billed at a higher “nonqualified” interchange rates.
Some processors have notified their clients that they will be increasing their fees concurrent with the fee changes being introduced by the card brands. Unfortunately, this means some merchants will face two sets of fee increases – from both the card brands and their processors.
Verisave is a third-party cost-reduction firm specializing in merchant accounts and credit card processing fees.
Verisave is not a payment processor, and is not affiliated with any processors, card brands, or banks.
Verisave has more than 20 years of experience optimizing and monitoring the credit card processing industry.