Visa is changing its rate structure for merchant fee structure

Visa is set to adjust the fees it charges merchants whenever consumers use one of its cards, Bloomberg reports. The new structure will raise rates for some categories - most notably, on card-not-present (CNP) transactions, which includes e-commerce, the fee for a $100 purchase will rise from $1.90 to $1.99 with a traditional Visa card and from $2.50 to $2.60 for a premium card - while other segments like education and large supermarkets may see a drop.

Visa is set to roll out the new structure this year in two phases, one in April and the other in October, though merchants will still be able to negotiate individual deals to lower their rates.

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Interchange and network fees have been a contentious topic for card networks and merchants, and it's not yet clear if this new structure will improve relations between the two groups.

These fees can be costly for merchants and lucrative for card networks and issuers: Merchants paid an estimated $64 billion in interchange fees in 2018, according to The Nilson Report, and Visa, Mastercard, Bank of America, Citi, and Chase paid around $6 billion in a 2018 settlement for a class action antitrust lawsuit after merchants claimed that card networks and banks colluded to inflate fees and fix prices.

Visa's new fee structure could please some retailers in certain categories by providing lower fees but frustrate the merchants that will see their fees increase, so interchange fees may remain a hot button issue for merchants and card networks alike.
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Visa's new structure appears to be a bid to bolster its acceptance and usage while taking advantage of e-commerce's reliance on cards:

  • By lowering fees for some categories, Visa can potentially convince more merchants in those areas to accept its cards and not include surcharges on its transactions. If Visa's new rates lower its fees for a specific merchant, they may be more likely to accept its cards, boosting Visa's network and increasing its value to consumers. At the same time, in many US states, card networks risk merchants adding a surcharge to card transactions to subsidize fees. These surcharges can make Visa's cards less attractive to consumers, but the flip side is that lowered fees can discourage surcharges. Also, the move to potentially lower fees on large supermarkets is notable because Kroger previously took issue with Visa's fees and partially boycotted its cards for a time, and the new structure could improve Visa's relations with merchants in the category.
  • By raising rates on CNP transactions, Visa can still secure significant interchange revenue without losing acceptance because they have US e-commerce purchases held hostage to a degree.E-commerce is a surging source of payments volume in the US, and with 76% of US consumers reporting in that the payment option they used most often for online shopping was a credit or debit card, per a report from TSYS, it's surely a valuable source of volume for Visa. That's especially true considering that CEO Al Kelly called e-commerce out as a key driver of the firm's consumer spending on Visa's recent earnings call. And because of this preference, as well as a lack of a simple alternative like cash at most e-tailers, Visa can be more confident that online merchants won't stop accepting its cards, allowing it to make up any revenue it might lose from lowering fees in other categories.
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