Visa announced a new fixed fee for merchant acquirers that will surely be passed on to merchants. “The fixed fee for merchant acquirers is expected to be $2 per month for about 60% of merchants and $5 or less per month for about 80% of merchants, Visa” said Friday. Visa said it also is waiving the fixed fee for acquirers that work with “qualifying charitable organizations.”

Visa Inc.’s new Fixed Acquirer Network Fee (FANF) is targeted at boosting profits after the Dodd-Frank Act, particularly the Durbin Amendment, changed debit fees and network rules, impacting Visa’s revenues.

• Interchange, is collected by acquirers and paid to card issuers.
• Visa’s FANF and Acquirer Processing Fee (APF) are fees that Visa charges acquirers and books as its own revenue.

Although there is no official release as to the final numbers, here is some data that is circulating:

Retail or Card-present merchants, excluding fast-food restaurants:

• 1-3  locations $2 per location, per month FANF
• 4 + locations up to to $65 per location for merchants with more than 4,000 locations.
• 1-3  locations high-volume will pay $2.90 per location per month; possibly more than $85 per location for merchants with more than 4,000 locations.

 Card-not-present merchants, merchant aggregators, and fast-food restaurants:

• $2 per merchant account per month for sales of $50 or less up to $40,000 per month for merchants with more than $400 million in gross sales. The monthly fee will be assessed based on Visa volume.
•  Possibly 16 tiers of fees.

The fee goes into effect beginning April 1, 2012 and merchants who are on ‘pass through’ pricing can expect to see the new fee on their statements as a separate line item, reflecting whatever fee is applicable to their account type, beginning in July 2012.

The Visa Acquirer Processing Fee (APF) will be reduced from 1.95 cents per debit authorization to 1.55 cents, as per the July 2011 announcement coinciding with new debit rules.

See Also Wall Street Journal article:  UPDATE: Merchants Face Cost Changes As Visa, MasterCard Unveil New Fees

Do you have a notice informing customers of a surcharge for using credit or debit? Careful, as this practice could land you in hot water. A checkout fee, or payment card surcharge, added onto a consumer’s bill when he or she uses a credit or debit card is against Visa rules, mirroring laws in 10 U.S. states.

Merchants can offer a discount for alternative payment methods such as cash or checks, but you cannot add on for charges.

10 States also Protect Consumers with No Surcharge Laws

1. California
2. Colorado
3. Connecticut
4. Florida
5. Kansas
6. Maine
7. Massachusetts
8. New York
9. Oklahoma
10. Texas

Note: Certain industries are permitted to charge a ‘convenience fee’, where it is not prohibited by law. This will be covered in a future article.

Interchange and Merchant Discount fees can be illustrated by a typical 4-party transaction involving the purchase of an item using a typical VISA/MasterCard type general-purpose credit card issued by a bank. When a Cardholder purchases a $100 item from a Merchant using a typical VISA/MasterCard type credit card, the Merchant passes on the $100 charge to its Merchant/Acquiring Bank in exchange for $98.00, pursuant to the Merchant’s contract with the Merchant/Acquiring Bank. The Merchant/Acquiring Bank submits the $100 charge into the VISA/MasterCard system and receives $98.50 from the customer’s credit card Issuing Bank (less a small processing VISA/MasterCard fee) in accordance with the VISA/MasterCard rules. The Issuing Bank eventually receives $100 from the Cardholder when the credit card charge is paid. Under this scenario, the Merchant/Acquiring Bank keeps a net Merchant Discount fee of $.50 ($98.50 – $98.00), while the Issuing Bank receives an Interchange” fee of $1.50 ($100 – $98.50). These fees combined are sometimes referred to as a Merchant Discount fee. In some instances, the structure of the transaction changes slightly, but the ultimate economic effect is the same. In addition, the same entity may act as both the Issuing Bank and the Merchant/Acquiring Bank in the same transaction.

The above is the IRS description of the merchant fees process. I think it may be easier for some merchants to understand this explanation so thought I’d pass it on. In this scenario, 75% of the merchant fees paid end up with the card issuing bank. It’s higher than that for the size businesses I generally deal with, more like 95-98%, but you get the point. Merchants need to manage payment processing costs, by controlling the big chunk of money that ends up with the card issuing bank.

What is interchange management?

Link to IRS article at top. Information Document Request for Interchange and Merchant Discount Fees – Banks.