Most merchants in the U.S. are about to repay some of the savings they realized from the Durbin amendment that became effective October 2011. Starting April 2012, Visa and MasterCard are implementing new fees and increasing some interchange rates that will cost most merchants from a few dollars to a few hundred thousand dollars per month. It is important for merchants to understand their liability for these fees and seek out ways to manage the increased cost.
The most significant of all the new fees and rates changes is the introduction of Visa’s Fixed Acquirer Network Fee (FANF). Effective for activity beginning April 1, 2012, this fee will apply to the acceptance of all Visa-branded products. This fee is charged to a merchant’s acquirer or credit card processor based on a merchant’s size and number of locations. Most processors have announced that they intend to pass this fee on to their merchants. The calculation of this fee is extremely complex as it is based on a number of variables, including:
- Number of taxpayer IDs
- Card present vs. card not present
- Merchant Category Codes (MCCs)
- Number of locations
- Visa gross monthly sales volume
Large merchants with many locations, multiple MCCs and mix of card present and card not present sales are having a difficult time calculating the impact of this fee to their organization. Optimized Payments Consulting has introduced a free online calculator that can help merchants estimate their monthly FAN fee. The FANF calculator can be found at https://optimizedpayments.com/fanf_calculator.php.
Visa is implementing this fixed fee to recoup some revenue lost from the implementation of the Durbin amendment. “Debit regulation has altered the competitive landscape,” Visa noted recently. The new fee structure aims to lower the “cost of Visa acceptance, while allowing continued investments” in the network’s development. Some analysts, that cover the Visa stock, estimate that FANF will generate $900 million in revenue per year for the company. Although Visa contends that this fee will be net neutral to their bottom line (in conjunction with some fee decreases*), it is difficult to see how. Many investors have already factored in this fee to the Visa’s bottom line and have sent the stock to an all-time high.
MasterCard is introducing a fixed Annual License and Registration Fee (ALRF) that becomes effective July 2012. This fee is assessed to acquirers based on their total MasterCard annual sales volume. Few acquirers have noted that this fee roughly equates to half a basis point or 0.005% of MasterCard sales volume, and that they intend to pass this fee on to their merchants.
As businesses look to manage their operating costs in this sluggish economic recovery, it is important for them to examine the cost of electronic payments. This is an area often overlooked due to its complexity, and firms either tend to overpay for this service or not take advantage of various incentives available in the marketplace.
*Visa is lowering the NAP fee (Network Acquirer Processing) on Signature debit and Prepaid transactions, eliminating the RIS (Risk Identification Service) Fee, reducing the Interlink switch fee, and making incentive payments to large merchants under the Visa Partner Program. Merchants with very small average tickets and high debit card usage will see a net benefit with the reduction of the NAP fee and addition of the FAN fee.