As Visa And Mastercard Ready New Interchange Schedules, Merchants Brace for the Impact

Having held off for the past two years, the country’s two biggest card networks are preparing revisions to their interchange schedules that at least one research firm says will cost U.S. merchants an estimated $475 million in additional transaction fees. Though Visa Inc. and Mastercard Inc. have historically revised their rate schedules each April and October, “this April is particularly significant,” says Callum Godwin, the Atlanta-based chief economist for CMSPI, a United Kingdom-based research firm.

The firm’s estimates indicate the changes in Visa’s rates will add up to a net $145 million in additional cost to acquirers. For Mastercard, the impact will net out to $330 million. The networks do not collect interchange. Merchant processors pay interchange to card-issuing banks and then pass the cost along to their client merchants.

In general, e-commerce merchants can expect the heftiest impact, according to the CMSPI estimates, which Godwin says are based on new rate schedules circulating among processors. Meanwhile, Mastercard’s new rates for small grocers will see increases that “are quite substantial,” according to the firm’s review. On the other hand, Mastercard is lowering rates for passenger transport, travel and entertainment, and day care. Visa, meanwhile, is reducing rates for small businesses. “Individual merchants have a fairly challenging task to figure out how [fee changes] impact them,” Godwin says.

The new rates represent the first significant set of changes to the interchange schedules since 2019, as the global networks largely left their rates alone in 2020 and 2021 in view of the impact of the Covid-19 pandemic on businesses. The latest round of changes also represent a softer net impact than the one CMSPI estimated for the rates the networks originally intended to introduce a year ago.

“Electronic payments have proven even more valuable since the start of the pandemic, and that’s why we’re seeing merchants encouraging their customers to use electronic forms of payment,” says a Mastercard spokesman. He adds Mastercard is reducing rates for hotels, rental-car companies, and casual-dining establishments “to encourage recovery in the merchant categories that were hardest hit by the pandemic.”

For its part, Visa is “lowering key in-store and online consumer credit interchange rates by 10% for more than 90% of American businesses,” according to a spokesman. As for rate increases, he adds, these are “largely avoidable and apply to transactions that are sent to Visa with insufficient data, are coded incorrectly, carry increased risk, or are processed without using a Visa EMV payment token.” Network tokens mask key data that accompany transaction messages to aid processing.

Merchant advocates and critics of the longstanding interchange system have historically denounced interchange, and some at least are quick to decry the latest round of changes. “What I’m hearing from many merchants is that this game has gone on long enough, and, coming on the heels of two years of Covid, is beyond offensive,” says Steve Mott, principal at BetterBuyDesign, a payments-advisory firm.

The networks respond that the interchange regime supports critical infrastructure at a time when payment risk is rising. “These rates are designed to maintain high data quality and integrity across our network to prevent fraud,” says the Visa spokesman.