If there is one thing that those close to the payments industry know, it is that the industry is constantly evolving. We see payments getting faster and more convenient. With that said, the one thing merchants rarely see, as a part of all this growth and innovation, is shrinking cost. Payments, particularly card payments, just seem to be growing more expensive. While it is true that some portions of card acceptance, such as the fees paid to an acquirer, may be getting slimmer and more competitive, merchants still foot the bill for the most expensive component – interchange.
If you are a treasurer, CFO, or any person lucky enough to oversee card operations for your business, you do not miss the headlines. Some of the more recent headlines garnering attention are the rumblings regarding the Card Networks increasing their interchange fees in 2019 and the battle between Kroger and Visa. What should not come as a shock, however, is that interchange and Card Network usage fees always trend upward regardless of whether they are catching headlines. You may have missed the notes on your merchant statements, because not everyone has time to look at those each month, for warning of rate increases to Visa and MasterCard’s volume-based Network usage fees. They were there, and they are in effect. The Card Networks make changes to their rate programs reliably each April and October. What is different in this case is the threat of more widespread increases that may affect the retail markets.
In April, we will learn the answer to the mystery of the impacted interchange programs; however, you should be certain that the changes would seem eerily similar across the Networks despite being reportedly unaffiliated. We think of the Networks as siblings. What one gets or does, the other is sure to follow as not to miss out. While Visa and MasterCard get most of the attention as number one and two, best believe that American Express and Discover are making or plan to make similar changes too. American Express throughout the past few months has transitioned merchants from their traditional pricing model to a tiered model reminiscent of the Visa and MasterCard interchange schemes. Yes, American Express, reliably the most expensive, got more expensive despite reports of decreasing rates.
Merchants are, once again, footing the bill for innovation, security, and rewards that all of us consumers enjoy. What merchants do not get, or at least not a large share of, is innovative technology that reduces the cost of acceptance. The ongoing saga that is the Antitrust Litigation has brought about some rule changes, but a SCOTUS win from American Express tampers some of those rule changes. This leaves merchants with few options to control costs, such as increase costs on increasingly price-sensitive consumers or return to dust-covered strategies. What really makes the difference is how a merchant evaluates these seemingly obsolete strategies and quantifies the qualitative and quantitative aspects. And, of course, finding out what upgrades these seemingly outdated strategies have picked up over the past few years.
Card payments are not going anywhere and are only penetrating markets further. One such strategy that has received new attention is surcharging. We all see it popping up, whether correctly applied or not, but it is mainly reserved to smaller businesses or certain market segments – think of your favorite artisanal cheese shop, or how you pay your rent. What we are less likely to see are the strategies merchants are taking behind the scenes. We are far less likely to see the subtle changes merchants make to influence our customer behavior, but it is certainly out there if you look for it.
Where an industry expert can help is to bring new light solutions once passed over. Understanding the complexities and nuances within the Card Network rules is a full-time job. What is even more challenging is conceptualizing those strategies into your own acceptance practices and modeling their cost and potential cost savings. Firms with true card expertise are rare. Hiring individuals from the industry itself can be challenging because they may lack the technical expertise. What is helpful is working with firms that have global expertise within the space. Redbridge is one of these companies. Our experts have insights into the card and electronic payment space around the globe.