Last updated on March 6th, 2020
Visa® to Revise Interchange Fees for First Time in 10 Years
Visa® interchange fees have remained unchanged for the past decade. These are the swipe fees that merchants must pay to a bank every time a customer uses their card. However, U.S. commerce has changed significantly since coming out of the economic crisis of the 2000s. Online transactions have increased. Additionally, new types of merchants are competing with more traditional ones but have faced the same Visa interchange fees. As such, the world’s most widely accept credit card network has decided that it’s time for an update.
What is the Interchange Fee Now?
Most consumers aren’t aware of the cost of paying with plastic. Typically, merchants pay 2% of the transaction amount when a customer physically swipes his or her credit card. For online sales or those conducted over the phone, most merchants usually pay about half of a percent more. Premium rewards cards incur higher fees, as these fees are what Visa® and other payment networks use to offset the cost of cardholder perks, like points and bonuses.
Visa’s fee structure has been mostly singular for many merchants throughout the history of the company. However, the company aims to increase the number of businesses that accept Visa® credit cards. As such, it is implementing a more nuanced structure with regards to how it charges merchants. These changes will hopefully encourage more merchants to accept Visa® transactions, facilitating increased use among consumers in the U.S.
How Much is the Visa® Interchange Fee Going to Change?
Visa’s new credit card interchange fees will vary depending on the type of merchant and nature of the transaction. These changes may level the playing field with regards to which type of merchant carries the brunt of paying for over $100 billion in fees each year.
According to U.S. Census data, e-commerce sales have nearly tripled in the last decade. In reaction to this growth, Visa will increase fees for “card not present” transactions, which include e-commerce and phone sales.
As such, fees for online and phone transactions will increase by around 4.74%. For a $100 purchase, that means a change from $1.90 to $1.99 in swipe fees. Based on current information, premium card transactions will see a slightly smaller increase of around 4%. The fee will rise from $2.50 to $2.60 for a $100 transaction.
Some of Visa’s merchant fee changes may offer a helping hand to brick-and-mortar retailers. This can possibly counteract the detrimental effect that online shopping has had on these businesses. This is most evident in the generous decrease in credit card interchange fees for supermarkets and related businesses. A $50 purchase with a premium Visa® card can incur up to 33% less in fees after these changes take hold.
Revised Visa Swipe Fee Can Increase Acceptance
By reducing Visa® Interchange fees, businesses that normally don’t accept credit card payments may start joining the denizens that already do. While fewer consumers these days regularly pay for purchases with cash or checks, many merchants still rely on these as their only acceptable methods of payment. By reducing merchant fees, Visa® can welcome landlords and educational facilities into the fold. This transition can enable consumers to pay for rent and tuition with their Visa® cards, decreasing the number of transactions involving checks and cash, and leading to more earnings for Visa®.
Reduced fees may also lead to more vending machines and parking meters joining the list of automated merchants currently accepting credit cards. Along with rent and educational fees, these seem to be the last bastions of cash-based transactions.
The Bottom Line
Visa® plans to implement these changes to its swipe fee structure in two phases scheduled for April and October of 2020. The reason for this staggered rollout is to allow merchants enough time to acclimate to the revisions. While smaller retailers may not feel the impact, larger merchants may need to adapt, especially those who rely on e-commerce.
The new Visa® interchange fees can have several implications for consumers. The redistribution of merchant fees may help many supermarkets compete with new online grocery and home essentials retailers, like Amazon Pantry and others. As a result, merchants may adjust their prices accordingly. Consumers may soon find that items from online merchants have increased prices slightly. At the same time, supermarkets and other brick-and-mortar retailers may extend their new savings to customers.
Many industry analysts also predict that increases in fees may translate to increased perks for premium cardholders. Consumers may not see any changes in credit card promotions this year, however, 2021 may bring huge signup bonuses and added benefits for Visa® cardholders.