Interchange Adjustments Will Add a Net $889 Million to Merchants’ Costs, an Analysis Says

With the two big payment networks set to raise by hundreds of millions of dollars the cost U.S. merchants pay for card acceptance, e-commerce merchants could see fee boosts while some segments—like travel-and-entertainment and low-ticket-value, quick-service merchants—could see some reductions. 

In total, rate tweaks scheduled by Visa Inc. and Mastercard Inc. for next month will generate a net $889 million more in so-called interchange costs annually. That’s according to estimates by CMSPi, a retail-payments consultancy. Interchange fees are set by the networks for acquirers, which invariably pass the costs on to merchants. 

The rate changes, originally scheduled by the networks to go into effect in April and October last year, were postponed in recognition of the economic impact of the Covid-19 pandemic. Now, though, it appears both Visa and Mastercard are set to follow through on new rates for “a significant portion” of hundreds of fee categories, CMSPi’s analysis says. “It would seem all systems are go with it,” says Callum Godwin, CMSPi’s chief economist. CMSPi is based in the United Kingdom and has a U.S. office in Atlanta.

The biggest portion of the increase will be accounted for by Visa, whose new interchange structure will result in an estimated $768 million in new fee income, CMSPi’s estimate says. Hardest hit will be full-service restaurants and subscriptions, along with online merchants. Large retailers will see a lesser increase, while small-ticket merchants and quick-service restaurants will see either no impact or potentially some reductions, based on their ticket values.

Some of the rate increases, however, may not be permanent, according to a Visa spokesman, who adds the network next month will also reduce some card-not-present rates. He points out that the CNP rates set for an increase in April will come back down later for merchants that tokenize user credentials. “Visa will provide a lower rate for certain card-not-present consumer credit transactions processed using a Visa EMV Payment Token as of October 2021,” the spokesman says. Visa will not comment on CMSPi’s $768-million estimate.

For Mastercard, the net increase from its rate changes will total to an estimated $383 million, with both online and in-store transactions absorbing the toll. This includes a wide swath of sellers, embracing grocers, airlines, and convenience stores. Passenger transport and travel-and-entertainment outside of airlines will see at least some net benefit, however, CMSPi estimates.

A spokesman for Mastercard refused comment on the report but added remarks about the timing of the network’s planned rate changes: “In 2020, we announced plans to make some adjustments to (U.S.) interchange rates for the first time in ten years. The changes include both increases, as well as decreases across all small-ticket transactions, and decreases in categories like car rental, lodging, certain restaurants, and daycare. These changes were planned before the pandemic and have been delayed for a year. We recognize the challenges merchants are facing and will continue to be thoughtful about the timing of implementation.”

While the two network increases total to more than $1.1 billion, the report applies a net $262 million in reductions it estimates from adjustments Visa put through in July. These changes largely benefited grocery stores.

The CMSPi analysts found both networks largely eyeing online traffic for a bigger share of interchange. “CNP is a real growth channel, and a lot of these fee increases are focused on CNP,” says Godwin. Adding CNP’s typically higher fraud rate to the fee boost, he says, “you can see it’s not great timing due to the pandemic impact on retail” for rate increases. He adds, “This is going to be very frustrating for merchants.”