Merchants Oppose Poison Pill That Undercuts Competition, Main Street and Consumers

“Without debit reform’s competition-enhancing standards, banks would be free to return to the days of unfettered price fixing.”


Yesterday, Chairman Jeb Hensarling of the House Financial Services Committee gave a speech about his commitment to helping Main Street and ending government bailouts. Unfortunately, the draft bill he released later in the day does the exact opposite.

Section 335 of chairman’s Hensarling’s discussion draft of the “CHOICE Act” favors the interests of fewer than two percent of the nation’s largest banks and the credit-card brands over the interests of small retailers, their employees and consumers in every Congressional district in the country.

This bill would turn back reforms that created a freer market and prevented Visa and MasterCard from price-fixing the fees their member banks charge merchants when customers swipe a debit card to buy something. Rep. Hensarling would turn the clock back six years to when financial institutions operated this “swipe fee” business as a rigged market without competition.

The reforms Rep. Hensarling proposes to repeal also brought competition into the debit- routing market, where previously there was none. Repealing these reforms removes requirements for networks to compete and paves the way for network monopolies, reducing our payment security while raising costs for all American consumers and retailers and harming our economy as a whole.

“Without debit reform’s competition-enhancing standards, banks would be free to return to the days of unfettered price fixing,” said Mallory Duncan, chairman of the Merchants Payments Coalition and senior vice president and general counsel at the National Retail Federation. “It’s important to remember that despite the smokescreen the big banks put up, debit reform is an incontrovertible success and should be protected.”

Join the millions of Main Street businesses in every Congressional district in calling for Chairman Hensarling to remove his poison-pill language that leaves the debit- card market without competition.

The Merchants Payments Coalition represents 2.7 million stores, including restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and others, with 50 million employees, fighting unfair credit-card fees and working for a competitive and transparent system for merchants and consumers.

Merchants Payments Coalition
Michael Flagg, 202-253-4164

What is cost per transaction for extra merchant fees?

What is cost per transaction for merchant account fees ‘extras’?  A recent report cited an average of $.05 to $.14 per transaction for account fees, that is merchant fees outside of interchange and discount such as monthly statement, PCI, insurance etc. I thought the numbers were surprisingly high so I created my own report below. None of the merchants I interact with pay insurance.

Annual fees vary by processor, as do merchant statements and other extra fees. Regulatory fees are generally passed through, but some bundle this fee and some are charging on a monthly basis. The numbers below are neither the lowest or highest a merchant might pay.

transactions per month 100 12 1200
annual fee $79.00 1 $79.00
statement fee $8.00 12 $96.00
regulatory $3.95 12 $47.40
total extra fees $222.40
Cost per transaction $0.19
transactions per month 1000 12 12000
annual fee $79.00 1 $79.00
statement fee $8.00 12 $96.00
regulatory $3.95 12 $47.40
total extra fees $222.40
Cost per transaction $0.02

The cost per transaction is greatly skewed by the number of transactions processed. The comparable report accessed data for over a million merchants. Our report uses common numbers we make available to merchants.

Visa to launch new fixed fee per merchant account

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

Visa prohibits surcharge fees on debit and credit charges

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.

State No Surcharge Laws Protect Consumers

10 States also Protect Consumers with No Surcharge Laws

It is prohibited by law for retailers to charge consumers a fee for using a credit card in some states. Consumers who are subjected to checkout fees in states where they are protected by law may report the retailer to their state attorney general’s office.
These states have laws on surcharging:
  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 explained

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.