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Visa planning big changes to its interchange fee structure

Visa is reported to be planning a complete overhaul of its interchange fee structure that merchants pay to accept its cards, hoping to persuade more people to abandon checks and adjusting its fees for new businesses such as ride-hailing and other app based services.

The company’s interchange fees will go up or down depending on the merchant and the way a consumer pays for their purchases, according to a document Visa sent to banks that outlines the changes. Higher rates are looming for transactions on e-commerce sites, while retailers in certain services categories, such as real estate and education, will see fees decline.

“The US credit interchange structure has been largely unchanged for the past 10 years,” Visa said in the document, which was seen by Bloomberg. “Based on the most recent review in the US, Visa is adjusting its default US interchange fee structure to optimise acceptance and usage and reflect the current value of Visa products.”

Total amount of interchange fees paid by US retailers

While the changes amount to just a few cents on every transaction, those pennies add up. Swipe fees have been a flashpoint between merchants, banks and payment networks such as Visa and Mastercard. Retailers have long complained about the more than $100 billion they spend each year to accept electronic payments, a figure that’s grown in recent years as fees increase and consumers flock to premium cards, which carry higher interchange rates.

Payment processors are updating their systems and readying merchants for the new rates, which will be rolled out in April and October, according to the document. Visa planned the two-part implementation as a way to give processors more time to implement the changes, according to a person familiar with the network’s thinking who asked not to be named because the matter is private.

Visa and Mastercard are the intermediaries that facilitate more than $6.5 trillion in card payments in the US each year. Visa declined to comment on the changes proposed in the document. Mastercard, which has its own interchange policies, had no immediate comment on whether it’s proposing changes of its own.

With Visa’s changes, the interchange rate for so-called card-not-present transactions, which include those made online or over the phone, will increase. For a traditional Visa card, the fee on a $100 transaction will climb to $1.99 from $1.90. For premium Visa cards, the fee will rise to $2.60 from $2.50. On a premium-card transaction of $50 for the category that includes large supermarkets, the interchange fee will drop 33%, to 77 cents from $1.15.

The changes proposed in the document apply to Visa’s so-called published rates. Banks and payments networks can negotiate one-on-one deals with retailers for lower pricing. For banks, the $91.2 billion in fees they earn on credit-card portfolios is now more than the interest they charge on the loans. Swipe fees contribute the largest portion, $52 billion, of the fee income that banks collect, according to data compiled by consultancy R.K. Hammer.

Visa’s new rates for certain service businesses reflect a strategy of trying to boost acceptance of its cards. The network has lowered the rates it charges for the health-care, education and real estate industries as part of the push. As part of its focus on expanding acceptance of its cards in the US, Visa included categories such as rent, parking and vending machines. In 2019, the company’s cards were accepted at 61 million locations around the world, a 14% increase from the previous year.

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