Can Processors Help Cut Merchant Costs?

With merchants growing more heated in their opposition to card-acceptance costs, processors are looking for strategies that could help sellers gain from improvements in card authorizations. An important example of this emerged this summer with news from the big Canadian processor Nuvei Corp. It launched a pair of technologies it says could boost card-authorization rates for North American merchants by as much as 3.5 percentage points. Will that claim hold up? We shall see.

The two services, PINless debit and least-cost routing, are far from novel, but they could help merchants “bypass traditional card rails in favor of lower-cost debit networks,” says Nuvei, which is making the services available now in the U.S market. “These enhancements give merchants access to debit networks that can deliver both higher approval rates and lower processing costs,” claimed Philip Fayer, Nuvei’s chairman and chief executive, in a statement.

The company, which deploys what it calls a “smart routing engine” that depends on artificial intelligence and machine learning, says it looks to route transactions “through the best-performing banks or card network.” For debit cards, the system looks to send transactions through what the company calls “lower-cost” networks, though resort to Visa and Mastercard is available if needed.

A bit of background: Debit cards account for more than 53% of online card volume in North America, Nuvei says. Regulation in the U.S. market in recent years has aimed at enhancing merchant choice in network selection, with the aim of introducing more competition. One such regulation, the Durbin Amendment, applies to debit cards and became law in 2010. Similar legislation for credit cards, the Credit Card Competition Act, is under consideration in Congress and would require that processors offer merchants a choice of networks beyond Mastercard or Visa.

Debit networks, too, have been seen by some experts as entities that could play a larger role in handling credit card transactions, though network officials typically avoid comment on this hot-potato subject.

Experts also point to companies not often seen as direct competitors to Visa and Mastercard as alternatives that could offer enough competition to reduce merchant costs. They often point to Venmo, a peer-to-peer payments network owned by PayPal. RTP, or the Real Time Payments network, is another candidate cited by some. It’s part of The Clearing House Payments Co., a system owned by some of the nation’s largest banks.

While most proposals depend on network competition to cut transaction costs, Nuvei could be offering a novel approach by focusing on acceptance rates. But merchant savings from Nuvei’s initiative is difficult to project, experts have told Digital Transactions. Time will tell, but this is a welcome alternative to legislation and litigation.

—John Stewart, Editor john@digitaltransactions.net