Interchange Update, October 2023

Card brands are going to update their interchange and card brand fees and we’ll go over some of the important takeaways here. As a reminder, updates occur every April and October. While these changes may minimally impact some merchant portfolios, we have seen certain RPY clients face as much as a 20 basis points increase in their processing costs in the past. If you’re a large merchant, a merchant aggregator, or a payment facilitator, it's always a good idea to be aware of the changes so any margin impact doesn’t catch you off guard.

Highlights

• Visa is introducing a card-not-present fee

• All commercial cards will have an additional fee from Visa

• Visa small merchant programs is expanding to include new merchant segments

• Mastercard is introducing an authorization optimizer fee for recurring transactions and a credit pre-authorization fee

• Discover and American Express have no updates for the 2nd half of 2023

October tends to have fewer updates than April, and this year is no different. Visa made the most changes. The changes that could impact a variety of merchant segments are a new digital commerce fee and a commercial solutions fee.

Visa Fee Updates

All Visa card-not-present (CNP) transactions will now incur a Digital Commerce Service Fee of 0.0075% with a minimum fee of $0.0075 per settled transaction. Visa will no longer separately bill for AVS and CVV2 verification services.

The new Visa Commercial Solutions Fee of 0.01% will be charged on all commercial card volume. Commercial cards include business, corporate, and purchasing credit, debit, and prepaid cards.

For Canadian merchants, the Interac Switch Fee will increase from $0.009750 per transaction to $0.012852. This applies to Interac contactless payments and ecommerce payments.

The other Visa changes are more specific to individual verticals or circumstances. Visa is increasing its Signature Preferred/Infinite interchange rate by 10 to 20 basis points for Travel, Product 1, Product 2, and Retail. Signature Preferred/Infinite refers to the rewards level of the credit card. Visa has four levels of cards: Signature Preferred/Infinite, Signature/Infinite, Traditional Rewards, and all other products. 

There will be a small interchange increase in Visa Product 1 (card not present) and Travel, 1 to 2 basis points. Healthcare, Education, Real Estate, and Services segments will see a small decrease, 1 to 2 basis points.

Visa is adding segments and updating the fee schedule for its Small Merchant Interchange Program which provides lower interchange rates for merchants processing under $280K annually in U.S. domestic consumer credit sales. The segments include card present and card not present transactions for Restaurant, Taxi, Real Estate, Education, Healthcare, Advertising, Insurance, Services, and Telecommunications and Cable.

They have also condensed some Interregional Consumer and Commercial Interchange programs with some small interchange increases.

Visa is introducing a High Risk Integrity Fee. In the past there has not been a specific fee applying to High Risk merchants, only fees based on specific situations. For example, a High Risk merchant may pay more because they experience more chargebacks which incur additional fees and penalties. The new High Risk Integrity Fees are $0.10 per CNP transactions and 0.01% on High Risk volume both CP and CNP.

Mastercard Fee Updates

Mastercard has only made a few updates that do not apply as broadly. They are introducing a Buy Now Pay Later program for Canada.As far as the merchant is concerned this will process like all other transactions do today and they will receive full payment. However, there will be different interchange categories. Most segments will have an interchange fee of 1.5%, except Utilities will be $0.10 USD per transaction.

Mastercard will implement a new Authorization Optimizer Power by AI Fee of $0.02 for U.S. and Canada only applicable to CNP recurring transactions using MC Authorization Optimizer. For this fee, Mastercard is leveraging their network visibility and AI to provide insights on when to resubmit authorization requests for a successful approval. This fee is only assessed when the transaction is recurring, the decline code is 51 (Insufficient Funds), and the Merchant Advice Code is 24 (Retry after 1 hour) through 30 (Retry after 10 days).

They will also be introducing a new credit card pre-authorization fee of 0.0075% for card present and 0.0125% for card not present both with a $0.01 minimum. The fee will apply to any approved authorizations (full or partial) for transactions coded “preauthorization”.

Discover and American Express Fee Updates

Discover and American Express did not announce interchange updates for the second half of 2023.

Summary

Payment technology businesses, ISVs and payment facilitators, particularly ones that are on interchange+ cost models, must stay informed about these updates because they can impact the cost of accepting card payments. For example, in a recent update in 2022, Visa announced an increased interchange fee for non-tokenized CNP transactions across many verticals. Shortly after the update, RPY helped one client processing payments in an impacted vertical enable network tokens saving 10 basis points on much of their Visa transaction volume.

It can be challenging navigating the impact of these card brand network interchange and card brand fee updates. We recommend communicating with your payment processor or acquiring bank, or working with a qualified consulting firm like RPY, to assess the financial impact of these updates on your portfolio. RPY’s expertise in network rules and in-depth knowledge of interchange and card brand fees power our proprietary analytical tools and drive our unique insights into maximizing the profitability of your payments business. Contact us at hello@rpyin.com today to explore how we can help.