According to documentation the company presented to banks this week, Visa is planning to restructure the rates US merchants pay to accept its cards. The largest such change in over 10 years, the move is part of an overall push to convert more check-writing consumers into payment card users. So how will this affect merchants?
We don’t have all the details yet. That said, we know the changes will target Visa’s interchange rates, or the fees merchants must pay whenever they accept a Visa transaction. Some rates—notably, fees for eCommerce transactions—will increase, while retailers in certain services categories (including real estate, education, and healthcare) will see fees decline. Some newer businesses categories such as ride-hailing services will also be affected.
While the change in cost-per-transaction may seem minimal—a dime or less, in most instances—retailers are not likely to respond positively. Accepting electronic payments already costs them more than $100 billion annually. Increasing the interchange rate will drive that higher, as will a push to persuade more consumers to use payment cards for purchases.
The new rate schedule will be implemented in stages (in April and October of this year), and apply to Visa’s published fees. Banks and other affected parties may be able to negotiate down from “list price,” but so far Visa is declining to provide any further details.
Who Stands to Benefit?
Is this a good idea? It seems like a strategic move on Visa’s part, as society is increasingly embracing electronic payments. Having even a slightly-larger slice of that pie should pay off handsomely for Visa stockholders.
Same goes for Visa’s focus on expanding acceptance of its cards. The more places that will accept your Visa card, the easier it will be to give up check writing altogether.
Raising fees on CNP purchases won’t be popular with retailers. They’re kind of stuck, though, as eCommerce merchants, in particular, aren’t in a position to tell Visa “No.” Not accepting Visa would be financial suicide for most online businesses.
Retail is a cash cow for Visa, and eCommerce is the fastest-growing arm of retail. Raising retailers’ fees in that arena will put Visa in a better position to offer lower fees—at least temporarily—for expansion markets.
New Markets, Greater Market Share
Most of the news coverage of Visa’s plan seems focused on the higher rates for eCommerce. To me, it’s equally relevant that Visa is also aiming to gain footing in markets typically not known for accepting payment cards. I see this as potentially having a greater long-term effect.
Take the real estate market, for example; currently, every credit card network has its own set of regulations concerning whether cardholders can put mortgage payments on a credit card. Some banks allow it and others don’t, but the trend seems to be moving away from accepting credit cards for mortgage payments.
If Visa can reverse that—convince more processors, banks, and card networks to accept card payments—the company is bound to increase its overall market share. Other payment networks would likely see a “trickle-down” benefit as well. The same logic works for making rent payments, which right now mostly requires a third-party payment processor.
Health care and education are similar; Visa benefits by having hospitals and universities themselves accept card payments. The company would also profit, though, by pushing further into categories such as parking and vending machines, both of which are ubiquitous on college and medical campuses.
To my mind, Visa’s move seems smart for the company. It won’t likely make them any friends among retailers, but probably won’t cost them many members, either. And over the long-haul, what works for Visa also has the potential to offer greater convenience and security to consumers and businesses in service markets.
So What Are the Downsides?
Naturally, whenever a major player makes a significant change to the payments system, my thoughts go to the ramifications in terms of fraud and chargebacks. Will Visa’s expansion into service areas offer a lower risk of chargebacks and friendly fraud?
Some things suggest it will. It’s difficult, after all, to claim “non-delivery” of a month’s rent if your landlord hasn’t served you with an eviction notice. And you can’t really say a gall-bladder surgery was “not as described” unless you’re also suing for malpractice.
On the other hand, one thing provenmon over and over again is that fraudsters will find a way to cheat the system. And in the case of friendly fraud, that means chargebacks are still going happen.
Even if expanding into different markets could limit chargebacks, it would only do so in those markets: it wouldn’t stop retail abusers, for example. Visa trying to grow its market base makes good sense…but restructuring fees doesn’t fix the existing fraud problem. And building out on an already shaky foundation may be the biggest risk of all.
