Visa’s interim fee modifications became effective July 2020. Here’s what you can do to mitigate the impact.
Winning, even surviving, in the competitive business world requires taking advantage of each opportunity that appears or heeding warnings that will likely affect the business. One such recent event was the introduction of new card brand fees and processes levied by Visa, Mastercard, American Express, and Discover in the first quarter of 2020.
As they typically do each year, the card brands communicated the changes associated with the 2020 spring release earlier this year. While rate modifications are certainly expected, this year proved to be more notable than most.
Visa specifically announced what could be considered some of the most extensive changes in more than a decade. Not to be outdone, the other card brands have followed suit with changes of their own. The result being significant cost increases for merchants in many categories, including consumer, business and travel segments.
Shortly after the card brands announced their changes, COVID-19 struck, and the brands took steps to delay the onset of these changes and postponed the modifications to July 2020.
In June, Visa announced that it was implementing an “interim” fee modification to its new non-qualified rate, which became effective July 17, 2020. This interim fee modification will remain in place until the previously published rates take effect in April 2021.
July has now come and gone, and the dust is starting to settle, giving organizations a better picture of just how substantial an impact these changes are going to have on their business. For many organizations, the impact will be a very rude awakening and one that could have been mitigated, if not avoided altogether.
Visa’s new fee structures
While certain categories and sectors, such as large supermarkets, may see a nominal decrease in cost, the overall impact for many organizations is a net increase. This, of course, contradicts the messaging put out by the brands themselves.
“Let’s be blunt,” said Austin Jensen, senior vice president for government affairs at the Retail Industry Leaders Association, in a recent statement. “Visa teasing that rates will go down for ‘some’ is masking the true impetus for this plan—their aim is to hike rates on the vast majority of merchants.”
Whether or not merchants can or should pass the added expenses on to their customers is uncertain. Nevertheless, merchants should move quickly to understand Visa’s new interim rates and how their businesses will be affected.
Visa’s interim changes have been some of the most impactful thus far:
- Electronic Interchange Reimbursement Fees (EIRF) have been eliminated and replaced with the introduction of new non-qualified categories
- Levying a 40 basis point (bps) increase in EIRF, as EIRF is effectively eliminated and transitioned to the new non-qualified rate structure
- A subsequent increase slated for April 2021 will take historical EIRF and standard transactions to 3.15%, roughly a 40% increase in consumer transactions that fail to qualify for a more optimal rate
- Elimination of historical B2B rates
Additional changes organizations must navigate
Other changes by Visa include new dispute resolution processes and shorter time limits to respond to customer disputes (a benefit to customers with potential added costs for merchants), penalties for excessive chargebacks, and additional pressure on customers to work with merchants to resolve disputes. Other changes affect the Payment Card Industry (PCI) data level definitions and negative option/preauthorization regulations.
Complexity — opportunity or threat?
The relationship between merchants and the card brands, already complicated, has grown more with the new rates and regulations.
There are hundreds of rates that can apply to specific payment card transactions, including the issuer and type of card, the merchant’s category code (MCC), the transaction amount, and the presence of a physical card at the point of sale (an increasing number of transactions occur in a mobile or e-commerce environment where the card is not present). Unfortunately, many organizations are in reactive mode as they find themselves without the time, tools, technology, or resources to proactively manage the intricacies of payment acceptance costs.
What can be done? 4 best practices your business can implement to manage its cost of acceptance
For those companies willing to invest in proactively managing their payment strategy, systems, and processes, whether internally with dedicated staff or externally with professional advisors, the financial benefits can be significant.
Despite their complexity, payment card acceptance costs can be managed and effectively reduced. A successful strategy for companies begins with:
- Investing in the right resources and tools. Identify the specific resources, either internal or external, responsible for managing the overarching payment strategy. Have a clearly defined short-term and long-term strategy and ensure the strategy evolves along with the needs of the business.
- Getting a handle on your data. In order to be effective, you must first have a thorough understanding of your current environment, volumes, costs, trends and critical key performance indicators (KPIs). The first step is to ensure you have timely and accurate data and that the data is mapped and tagged correctly so it can be utilized effectively for driving current analysis and future business decisions.
- Leveraging relationships, tools and technology. It is critical to develop and grow relationships with your key partners. This includes your acquirers, processors, gateways, technology providers and the card brands themselves. Communication is key to navigating required process changes and ensuring you remain current with best practices. Actively managing these relationships is also critical in securing the most competitive rate structures and overall value exchanges to further reduce cost while creating additional value.
- Staying vigilant. It is easy to lose focus once an initial assessment or implementation of a new solution is complete. However, to mitigate the impact of Visa’s changes on your business, you have to continuously keep your finger on the pulse of your organization’s payment strategy and associated costs. Many organizations find this is best accomplished when they outsource the oversight or management of their fees to an industry expert so they can, in turn, focus on their next project or priority.
Market conditions are especially challenging for merchants now and in the foreseeable future. Payment card transactions are likely to expand as both businesses and consumers continue their focus on electronic payments. Accordingly, businesses need to adapt while also mitigating acceptance costs; managing a complicated web of acquirer, processor and card brand relationships; and safeguarding against fraud.
Fortunately, there are resources available to aid your organization in capitalizing upon these opportunities and creating meaningful financial benefit in the process.
Let Redbridge’s trusted advisors ensure that your organization accepts payments in the most efficient and effective means possible. We do all the work while you realize the savings, maximize efficiency, and give time back to your treasury organization.