Corporate America Discovers Payments - Digital Transactions

More documents

Recommendations

Info

NETWORKSDecember 2009 digitaltransactionsThose OtherMerchant FeesLauri GiesenMerchants direct most of their ire at interchange, but there are othernetwork fees that merchants ultimately pay, and yes, these are goingup. Unlike interchange, which goes to issuers, these other fees are agold mine for the networks.With merchants ventingtheir anger over paymentcard acceptance costs,politicians and regulators are weighingin. No fewer than three interchange-regulationbills were pendingin Congress this fall. Indeed, most ofthe controversy centers on that one, bigcomponent of acceptance costs: bankcard interchange, which merchantacquirers pay to card issuers each timea credit or debit card is used.The spotlight on interchange isn’tsurprising because it can account forup to three-fourths or even more of amerchant’s acceptance costs. Creditcard issuers have become moredependent upon interchange to generaterevenues as interest income tied tocard-based lending declines.But there are less prominent feescharged to acquirers that are beginningto take on gravitational mass. Both VisaInc. and MasterCard Inc. in 2009 raisedcertain merchant-side fees nearly fourfold,price increases that will producehundreds of millions of dollars in newrevenues for the networks.As companies whose chief jobsare to develop and oversee worldwidetransaction-routing networksand support their well-knownbrands, Visa and MasterCard generatetheir revenues from their directcustomers—card issuers and merchantacquirers—through an assortmentof assessments and fees. Unlikeinterchange, where the networks setthe rates but the revenue ultimatelyends up in the coffers of card issuers,network fee revenue goes directly toVisa and MasterCard as payment fortheir role in authorizing, securing,and settling transactions.But like interchange, most paymentexecutives consider the acquiring-sidenetwork charges to be “passonfees.” That means that, while thenetworks charge them directly toacquirers, the acquirers usually passon the cost to merchants through discountrates and other processing fees.No OptionsAt first glance, the new Visa andMasterCard acquirer fees aren’tthat impressive. In both cases, theyamount to less than 2 cents a transaction.But those pennies add up—especiallysince the 1.85-cent fee Master-Card announced in March and the1.95-cent fee Visa initiated in Julyboth replaced fees that had been only0.5 cents per transaction. MasterCard’snew fee technically is a settlementcharge called “Network Access andBrand Usage Fee” (NABU). Visa’sis an authorization charge dubbed“Acquirer Processing Fee.”These fees have the potential tosubstantially increase the networks’processing revenues. Some financialanalysts attributed much of Visa’shigher-than-expected revenue andearnings in the fourth fiscal 2009quarter ended Sept. 30 to increasedrevenues from the new acquirer fee.And while retailers with smalltransaction volumes and particularlylarge ticket sizes haven’t felt the impactas much, high-volume retailers that relyon small purchases typically are gettinghit harder. Adding nearly 1.5 centscan be significant, for example, whenapplied to every $5 or $10 card purchaseat a fast-food restaurant.But the biggest impact of thesefees is most likely to be felt by the cardnetworks themselves. With both facingdeclining average credit card tickets, aflat fee that generates the same revenueregardless of the transaction amount iswelcome. These fee increases comeafter both companies went public, indicatingthat their revenue streams areunder greater scrutiny from shareholdersthan in previous years when theywere not-for-profit associations ownedby the banks that issued their cards.Visa declined to comment specificallyabout its new fee. In a statement,a spokesperson said, “Visa22 digitalDecember 2009
egularly reviews its pricing, as anybusiness would, and makes adjustmentswhere appropriate dependingon such factors as the value deliveredto clients and the need to be competitive.It is also important to note thatVisa does not assess any fees to cardholdersor merchants, and we have noinvolvement in financial-institutionpricing to cardholders or merchants.”MasterCard did not respond to arequest for comment.This magazine’s sister publication,<strong>Digital</strong> <strong>Transactions</strong> News, estimatedin March that the new merchant feescould produce more than $600 millionin additional revenues annuallyfor the networks.Not surprisingly, merchants andacquirers aren’t pleased, but they can’tescape the higher pricing. “There isnot much acquirers can do but pay thehigher fees,” says Adil Moussa, analystfor Boston-based Aite Group LLC.“They’re not happy with the increases,but they don’t have a lot of options.”Industry observers expect mostacquirers to pass on their higher costof doing business to the merchantsthey service. In many cases, particularlywith large merchants, the feeincreases will be directly passed on inindependent sales organization. “Theyhave to explain that they are just passingthrough higher fees that they haveto pay and they have to show documentationthat their costs went up.”Some acquirers and ISOs justmight swallow at least some of thecost to remain competitive.‘There is not much acquirerscan do but pay the higher fees.’a per-transaction increase identical towhat Visa and MasterCard are charging.In other cases, especially withsmaller retailers, the pass-throughwon’t be as direct but merchants arelikely to see higher prices from theiracquirers somewhere along the line.“Most ISOs are going to have to becareful how they handle the situation,”says Henry Helgeson, president ofBoston-based Merchant Warehouse, an“This fee is targeted at the merchantacquirers, not the merchants,”says James Friedman, an analyst withBala Cynwyd, Pa.-based SusquehannaInternational Group LLC, a brokeragefirm that has a 1% stake in MasterCard.“Some of them are saying they willhave to absorb the increase in order tomaintain or grow market share.”Reactions from merchants tothe higher fees have been mixed,can we give her simple, quick, innovative ways to pay you?© 2009 Western Union Holdings, Inc. All Rights Reserved.As a leader in payment services, we offer a full line of payment solutions. So you’ll be ready to accept paymentsonline, through IVR or call centers, or at our agent locations. It’s simple for your customers, good for your business.Visit payments.westernunion.comdigital23
Page 1: 2009Corporate AmericaDiscovers Paym
Page 4: D I G I T A L T R A N S A C T I O N
Page 7 and 8: Encouraging signs of economic recov
Page 9 and 10: called parallel payments makes it h
Page 11 and 12: VeriFone, he adds, has “reachedou
Page 15 and 16: $10.2 million. Elavon also bought t
Page 17 and 18: E-COMMERCEDecember 2009 digitaltran
Page 19 and 20: YOU have the POWER with themost luc
Page 21 and 22: of shares owned, bought, or sold pe
Page 23: Be PaidEvery Time,All The TimeCusto
Page 27 and 28: MasterCard, which reported itsthird
Page 29 and 30: Discovers PaymentsStartup payments
Page 31 and 32: payments, Google may yet turn thing
Page 33 and 34: is of value, other merchants will w
Page 35 and 36: Revolutionary Times Call for aRevol
Page 37 and 38: COMPONENTSDecember 2009 digitaltran
Page 39 and 40: The increase in store sales thatSel
Page 41 and 42: ENDPOINTThere’s theexistential th
Page 44: Eliminate thePaper Chaseand Take Yo

Corporate America Discovers Payments - Digital Transactions

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?