KBW Takes a Look at Mobile Payments Leader Visa’s Interchange Fee Changes
Some changes look small on the surface until they’re examined more closely, where the changes sometimes take on a new and disturbing life. Our friends out at Keefe, Bruyette & Woods (KBW) sent some research our way recently that defines one such change that might look small, but has the potential to shake up some entire industries. That change is Visa making some alterations to its interchange fees, and what that may do to those who are part of the everywhere that Visa wants to be.
The new rates are designed to be phased in gradually, with one set of changes going in this April and another set to follow in October, allowing for plenty of time between changes to give processors sufficient time to get up to speed.
One set of changes will focus on card-not-present interchange rates, which will go to $1.99 on every $100 paid. That’s a five percent increase over current levels, which are going up from $1.90. That’s for a Traditional Visa card; a Premium Visa will see a four percent increase, from $2.50 to $2.60 on every $100 paid.
Premium card transactions, though, will see a substantial drop. Instead of the current $1.15 for every $50 paid, the amount now drops to $0.77, a 33 percent drop.
Such a move, KBW posits, will deliver more impact to small and medium-sized businesses (SMBs) as larger businesses have a tendency to negotiate directly with networks to determine rates. These transaction rates, therefore, will have more impact to those who aren’t negotiating, or able to negotiate. However, KBW notes that the significant drop in premium card transaction rates could help in the long term, as SMBs are more likely to accept a platform that has lower rates.
However, given the nature of card-not-present transactions and their connection to e-commerce, there could be more of an issue here than KBW expects. Granted, the increases aren’t exactly crippling, and in an economy where consumer confidence has been high for a while now, most customers might shrug off that extra four or five percent pretty readily. With improvements in card transactions, however, any loss from the card-not-present fee hikes could be offset by the gains in card transactions stemming from reduced fees.
Only time will tell just how this all boils down, but one point is clear: changes are coming and will have at least some impact in the field. How much, and where, however, is anyone’s guess.