Verisave

Visa is Moving Forward with a Controversial Interchange Fee Increase in 2021

Business interchange fees increase by as much as 20%. 

As a controversial fee update is rolled out to merchants nationwide, many businesses scramble to minimize these additional costs.

Background:

If your business accepts credit card payments, you pay a variety of fees every time you process a transaction.

One of these is called an interchange fee.

Interchange Fees do not go to your processor … they go back to the bank that issued the credit card to your customer.

In April, Visa made some unexpected changes to the rates they charge, primarily affecting business interchange fees, which will increase business credit card processing fees by up to 20%.

Mastercard, Discover and American Express initiated similar fee updates at the same time.

The Controversy:

Visa had been planning to introduce these rate increases in 2020.

Due to the pandemic, they elected to delay the increases until April 2021.

After further pressure from Congress, Visa once again announced a delay, pushing the increases into 2022.

However, in April 2021 Visa moved forward with a portion of the contested fee increases anyway. This was unexpected and unannounced.

Impact:

How much will this increase your processing fees?

It depends.

Companies that mostly have B2B transactions (meaning your clients are businesses that use specific business Visa cards) will see an increase in their processing fees.

Companies that have a high proportion of consumer transactions (B2C) will not be as greatly impacted, but even they are likely to see some fee increases this year.

What can be done?

To offset these increases, adjustments will need to be made on the back end of your merchant account.

These will be different for every business, and depend on a number of factors.

To determine the best approach for your merchant account, we offer a no-charge merchant account analysis. 

You can request that here.

Additional Details

As always, expect these increases to be complicated and opaque. Here are some things to watch for:

 

Standard Interchange Increase Levels:

  • The card types most affected by this will be: Visa Signature B2B and Infinite B2B, Visa Level 2 Business Tier Cards, and Business Downgraded Cards
  • As a basic example: when you process a customer’s payment of $1000, the Standard Visa fee will go up from $29.50 to $31.50
  • The same $1000 transaction on a Visa Business Card would see a fee increase from $25.00 to $30.00
  • THESE EXAMPLES REPRESENT THE SIMPLEST LEVELS OF THE INCREASE SCHEDULE … IT GETS MUCH MORE COMPLICATED

How Your Processor Will Respond:

  • Whenever Visa or Mastercard increase Interchange Fees, some Processors tend to increase their own fees at the same time
  • These Processors time their planned increases to coincide because you are already expecting an increase
  • And they rarely make this clear or obvious, so it comes across looking like part of the same card-brand increase
  • Note: some Processors are more up-front and fair than others … 
  • But even a fair processor will not address the Interchange Fee increase on your behalf

Plan of Action:

  • Most merchants believe Interchange cannot be reduced
  • This is incorrect
  • Depending on your mix of card and transaction types, there are a number of steps that can be taken to avoid or offset increases like this
  • Contact Verisave to determine the best plan of action

Schedule Consultation

  • We Will Answer any Questions You Have About Credit Card Processing Fees
  • Receive Candid Feedback on Your Merchant Account from an Expert

How Kroger Fought (and Won) Against Visa to Lower Credit Card Merchant Fees

smiths

In 2019, Smith’s Food and Drug stores (part of the Kroger grocery empire) stopped accepting Visa Credit Cards as a payment method, citing high credit card processing fees. 

This ban made big waves in the retail merchant account world, and signaled Kroger’s intention to negotiate a reduction in Visa’s portion of those processing fees.

In 2020, after a long standoff, Visa credit cards have finally returned as a payment option for Smith’s/Kroger customers.

Does this mean the negotiations worked in Kroger’s favor?

Here is an overview of the situation.

What Drove Kroger’s Decision to Ban Visa Credit Cards?

Put simply: a heightened cost of doing business was at the root of Kroger’s ban. 

Grocery stores tend to have razor thin margins in order to remain competitive. Increased merchant account costs, such as credit card processing fees, inherently drive the grocery prices up.

Visa credit cards are involved in over 70%, on average, of consumer credit card transactions. A merchant (such as a Smith’s/Kroger grocery store) must pay a processing fee whenever a customer uses a credit card.

And while Mastercard, American Express, and Discover all entail similar processing fees, Visa’s majority market share means the vast bulk of a Kroger’s credit card processing fees come from Visa transactions.

Kroger’s decision to stop accepting Visa was a strategic one aimed at mitigating these fees, so as to maintain margin and remain competitive.

But Kroger’s goal was never to ban Visa long-term.

Kroger’s goal was to force Visa to the negotiating table, and achieve a reduction in their processing fees.

Was this a Good Idea?

This is a risky move for any merchant. 

Many Visa credit card holders might not be willing to use a different form of payment, or may not have access to an alternative. These customers might have been motivated to shop elsewhere during the ban.

It had the potential of being a customer-relations nightmare. 

Did the ban put a significant dent in grocery sales? Only Kroger knows for sure.

For most merchants, this would NOT be the recommended course of action.

It is rare for a retailer, or any business, to ban Visa in particular. Again, a large portion of the credit card-using buying public is comprised of Visa credit card users…many of whom make purchases exclusively via those credit card to take advantage of points and rewards.

Moreover, very few companies are large enough to leverage a negotiation directly with Visa. 

Clearly, Kroger was able to ignite that conversation. And, one might suppose, Kroger had thoroughly done their homework prior to instigating the ban. It is likely they knew exactly how many of their customers might be pushed toward competitors as a result.

But that doesn’t mean the ban was Kroger’s best option.

For most merchants, there are much easier ways to optimize one’s credit card processing fees.

What are Credit Card Processing Fees?

Credit Card Processing Fees are the fees paid to various entities involved in the credit card payment process.

When a customer pays with a credit card at a Smith’s Food and Drug location, Smith’s/Kroger must yield a percentage of that payment to the entities that make the transaction possible.

These fees are what allow Kroger (and all merchants) to accept the credit card payment in the first place, and are a common cost of doing business.

Can Credit Card Processing Fees be Negotiated or Reduced?

In most cases, yes they can. But first, one must understand that Visa is not the only entity involved in levying merchant account fees when a Visa card is swiped.

They only get a portion of it. And a relatively small one, at that.

So, while Kroger focused on negotiation directly with Visa, they were only able to address or reduce that portion.

Again, other entities are involved.

A merchant like Kroger has its most direct merchant account relationship with the Processor … an acquiring bank responsible for collecting the payment from the customer’s card, on the merchant’s behalf.

But the Processor isn’t in control of the entire fee structure either.

Merchants seeking to reduce fees can certainly negotiate or even change Processors, but this is often futile and time-consuming, sometimes costly, and doesn’t address the full scope of fees.

The most thorough method for reducing merchant account fees is to engage with a seasoned merchant account auditor, who will pursue and implement fee reductions with ALL involved parties.

Whether Kroger had significant room to lower their Visa-related fees is not publicly known, but their efforts were satisfactory enough to ultimately lift the Visa ban.

Who Are the Other Recipients of a Merchant’s Credit Card Processing Fees?

Visa or MasterCard (which are defined as credit card brands or “Networks”) only get a small percentage of the merchant account fees: roughly 5% of the total fee amount.

The entities involved in the merchant account fee structure are:

  • The Issuing Bank: the organization that issued the credit card to the shopper or customer
  • The Network: Visa, MasterCard, AmericanExpress, Discover Card
  • The Acquiring Bank: the bank that processes the payment funds on behalf of the merchant
  • The Processor: the entity that connects the merchant with the above infrastructure

And here is how the fees are typically distributed:

  • 80% to the Issuing Bank
  • 5% to the Network
  • 5% to the Acquiring Bank
  • 10% to the Processor

To put it another way, let’s suppose a merchant has a total annual credit card processing volume of $100,000,000. If the merchant’s overall effective rate (the total percentage of the credit card volume that goes toward merchant account fees) is 3%, the merchant would be paying $3,000,000 in fees. And those fees would be distributed thusly:

  • $2,400,000 – to the Issuing Bank
  • $150,000 – to Visa or MasterCard, etc.
  • $150,000 – to the Acquiring Bank
  • $300,000 – to the Processor

The largest portion, which goes to the Issuing Bank, is called the Interchange fee and is often considered to be set in stone … but this would be a misconception. It can be lowered.

As can the other fees.

Did Kroger Achieve All Available Fee Reductions?

In all likelihood, no.

It’s possible that, beyond a public standoff with Visa, Kroger also made some effort to reduce Interchange and other related fees that are outside of Visa’s purview.

However, most merchants, even large entities such as Kroger, do not have the in-house expertise needed to adjust their merchant accounts properly, in order to optimize something as complex as the Interchange fee structure.

Most likely, Kroger left this money on the table.

What Can be Done to Reduce Credit Card Processing Fees?

The difficulty lies in the complex nature of the various credit card processing fee structures, and from a deliberate lack of transparency.

First of all, not every Processor lists the fees in the same way. And some fees are combined, or mislabeled, in ways that can be confusing to the average merchant. Even identifying the fees is a challenge.

The reason for this is simple: the entities that benefit from your credit card processing fees do not want you to understand your statement. They certainly have a responsibility to be competitive within the industry, but they profit more if their fees are difficult to comprehend.

For that reason, the only truly effective way to lower merchant account fees is to engage with an experienced audit firm who will be able to quickly identify areas in which the merchant is overpaying, and who will undertake the complicated steps of optimizing the account in any way that proves impactful.

Often, and preferably, this is done without the need to change the merchant’s Credit Card Processor.

About Verisave:

Verisave is a merchant account audit firm headquartered in Salt Lake City, with 17 years experience in analyzing credit card processing statements and in implementing strategies that reduce clients’ merchant account fees by 25-35% or more, without switching processors. Verisave operates on a gain-share basis rather than on consultancy fees, and closely monitors clients’ statements after implementation.

How Verisave Helps Reduce, Manage and Control Merchant Account Fees

How Verisave Helps Reduce, Manage and Control Merchant Account Fees

At Verisave, we specialize in helping businesses  lower their monthly merchant account fees. With years of experience and back-end knowledge of the credit card industry, we managed to secure $5.3 million in savings just last year for our clients. Too many companies are letting their merchant account fees get the best of them, paying high interchange rates, late fees, and other unnecessary charges. Human errors can be made due to the complexity of merchant account statements. Bringing Verisave on board provides businesses with a three-fold service of ongoing reduction, management, and control of company merchant account fees

.

Read moreHow Verisave Helps Reduce, Manage and Control Merchant Account Fees

3 Tips for Lowering Your Credit Card Processing Fees and Costs

If you are looking to cut company spending, have you considered reviewing your merchant account statement? While completely eliminating credit card processing fees is a non-starter, reducing them is a valid option that many companies and accounting departments are simply unaware of. Three things your company can do today to immediately lower your credit card processing fees are listed below.

1. Speak With Your Current Processor

Reducing the interchange rate even a few points can have a major impact on the company’s year-end totals. Speak to your current processor to request a “Rate Review”. Processors profit from higher rates and are unlikely to let you know when your current rate is above the industry benchmark. If they are encouraged to perform a rate review, they may end up shaving off a few basis points to maintain your business.

Read more3 Tips for Lowering Your Credit Card Processing Fees and Costs

Merchant Account Fees: Not Just Another “Cost Of Doing Business”

When it comes to doing business, most companies factor into their spending plan a number of unavoidable fees. One of which is often their merchant account fees. It’s set aside, unassessed, and assumed that this fee is a non-negotiable. But what companies should know is that these fees are in-fact not set in stone and could have a major impact on your yearly costs.

Master Merchant Account Statements To Decrease Company Spending

You cannot nix merchant account fees all-together. It’s only fair that the companies offering your customers such a seamless way to make transactions receive payment for the time and manpower required to process them. Unfortunately, they get a little greedy and have high hopes that you won’t notice.

Read moreMerchant Account Fees: Not Just Another “Cost Of Doing Business”

The Monster Inside Your Business: Credit Card Processing Fees

Credit cards have opened the door to many convenient business practices today. From online payments to simplified returns, there’s no way you can avoid offering this service to your customers. But perhaps you weren’t aware of just how convoluted those credit card processing fees might be? It’s much more complicated than a simple fee-for-service.

This modern sales convenience has something lurking in the closet. You saw him when you first signed up for your merchant account. He was sitting in the corner of the room, quiet, innocent, a little hairy and seemingly unavoidable. When you signed your contracts, you promised to let him hang around. But that monster didn’t stay quiet for long. He quickly became a noticeable disruption. He got hairier, stinkier, and louder.

That monster and all of his gross flaws are your Credit Card Processing Fees.

Read moreThe Monster Inside Your Business: Credit Card Processing Fees