The recent settlement with VISA and MasterCard fell on the side of merchants. We asked our Zintro experts to analyze the settlement and how it will affect small businesses and what consumers need to know how it will affect them.
Mark James, a credit and loyalty technical expert, says that the Visa/MasterCard settlement demonstrates that these network giants are impervious to penalties, and they will continue to charge swipe fees and have been testing other fees over the past few years. “Recourse available to merchants is to introduce surcharges. However, most merchants will find this difficult to implement in practice,” he says. “Surcharges could be a great revenue generator and deterrent in some industries. For example, in the UK, Ryan Air has charged consumers a hefty fee for the use of credit cards. This has contributed to a general declining credit card industry in the UK,” James explains. “Related to this is the US Durban Accord, the intention of which was to cap Visa and MasterCard debit fees. Now debit fees have been capped at $0.24 in the US. The result is that merchants with large value transactions pay a much lower rate. However, for low value transactions, the charge can have a huge impact on profits. A $0.24 on a $2 cup of coffee clearly has an impact for these types of merchants.”
James says that another consequence of the Durban Accord is that card issuers are pushing consumers to use credit cards as opposed to debit. “Bank of America even tried to put a $5 monthly fee on accounts with debit cards, but cancelled this because of consumer backlash. US merchants pay the highest swipe fees in the world and will likely to continue to do so,” he says.
Gary Yamamura, a payment systems and technologies expert, cautions that it is premature to consider the proposed settlement as a done deal for the card networks and/or merchants. “With the defection of the convenience store contingent and the lack of inclusion of a long-term commitment by the networks to reduce interchange or, more importantly, to introduce the ability for merchants to negotiate interchange rates, there may be more negotiating required before a universally acceptable deal is reached,” he says.
Should the current proposal survive without substantive improvements in favor of the merchants, small merchants will see little benefit from the settlement and are unlikely to even notice the temporary reductions in their monthly settlement statements from their acquirers. “The key question would therefore seem to be will merchants begin surcharging in large enough numbers to affect cardholder behavior? For the small merchants that have developed an understanding and appreciation of the impact of interchange, and the other costs associated with bankcard acceptance, the answer will probably be yes where those merchants doubt that surcharging will adversely affect sales,” Yamamura says. “What may already be true, however, is that many of those merchants may be surcharging card payments because they are unaware that such activity is prohibited under current network rules or don’t care.”
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