April 15, 2014
By John Stewart
Visa Inc. has tweaked its controversial fixed acquirer network fee (FANF), with the changes scheduled to take effect 12 months from now, according to sources who have seen the changes.
A bulletin Visa released last week and circulated to acquirers indicates the modifications to the 2-year-old FANF are aimed chiefly at very small merchants and at aggregators, acquirers that sign up micro-merchants for card acceptance and allow them to use the acquirer’s merchant account, the sources say. While much of the FANF fee structure is apparently left untouched, the changes will require enough system reprogramming at acquiring operations, sources say, that Visa felt it necessary to issue the bulletin a year ahead of the effective date.
The Visa bulletin, some details of which were obtained by Digital Transactions News, introduces two new rate tiers, both for small merchants. The new lowest tier, for merchants with monthly Visa volume of $200 or less, carries no fee. The next lowest, also new, ranges from $201 to $1,249.99 and carries a fee of 15 basis points (0.15%) rather than the fixed fee that attaches to all other FANF tiers.
These new tiers replace the existing three lowest tiers in the FANF schedule for card-not-present merchants, aggregators, and fast-food restaurants. But it is also included in a separate FANF schedule for card-present merchants that is otherwise geared to the merchant’s store count rather than its monthly dollar volume. Physical merchants that fall into either tier will be subject to the new, volume-based rates. These merchants are not likely to operate more than one store, which is the lowest existing tier in the card-present schedule.
The other big change is that aggregators will be required to report their merchants as separate tax identification numbers, rather than reporting them under a single tax ID. This could result in a higher or lower monthly fee for aggregators, depending on how the fees for individual merchants add up. Currently, the monthly fee for card-not-present merchants, aggregators, and fast-food restaurants is capped at $40,000 for monthly volume of $400 million and up.
This change is also likely to require considerable system work for aggregators and their processors, which starting next April will have to track volume and compute fees for merchants individually rather than collectively.
The new volume tiers could benefit some small merchants considerably. For example, an online retailer whose volume amounts to $1,200 monthly will pay $1.80 per month under the new pricing, compared to $7 under the current rates. An even smaller card-not-present merchant will pay nothing in FANF fees for sales of $200 per month, versus $5 today.
In a statement it issued to Digital Transactions News about the changes, Visa said: "Visa continuously monitors our business and makes adjustments to our pricing as necessary based on market dynamics. As such, Visa is introducing select changes to its Fixed Acquirer Network Fee (FANF) structure, including modifications that are designed to lower–or in some cases, eliminate–FANF on volume from small merchants with less than $15,000 in annual Visa gross sales.
“We feel these changes could also serve to expand Visa acceptance among small businesses. While eliminating the fees for smaller retailers, Visa is also making other adjustments to FANF to improve the alignment of these fees whether a merchant connects to Visa through an acquirer, processor, payment facilitator or other party.”
Visa introduced FANF in April 2012 in response to new debit card routing flexibility handed to merchants under the Durbin Amendment to the 2010 Dodd-Frank Act. Under the new law, merchants must have a choice of at least two unrelated networks. To encourage merchants to concentrate their credit and debit card volume with Visa, the network structured FANF’s fee schedules so that, within any given volume tier, merchants pay less per transaction as they add stores and volume. When they grow large enough to jump to the next tier, they incur a higher fee but can bring their transaction cost down by adding yet more volume.
The new set of network fees provoked controversy among merchants, many of which complained about the new cost coming on top of interchange costs and what they perceived as a lack of information about the fees. Unlike interchange, which is set by the networks but collected by card issuers, FANF revenues go to Visa.
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