Spring brings payment card networks’ rules changes. Networks communicate these changes to the acquirers, who then inform their merchants. This chain of events must happen in a matter of three to four months before the next round of changes come in the fall. This year, the impacts are more unique as the networks have delayed a number of fee increases due to the pandemic and they will implement them in April. The financial implications to the merchant community will be significant.
As store foot traffic declined, merchants saw an increase in omnichannel and eCommerce transactions that represented three to five years’ worth of growth in only one to two years. Merchants had to innovate in the eCommerce space in order to keep their doors open. This means the delayed fee increases for eCommerce traffic for both Visa and Mastercard will have major repercussions for almost all merchants this year. I will highlight a few of those changes and point to some resources that merchants have with the MAG to help plan for these impacts and advocate for change going forward.
The first impact to call out is the overall fee increases that will be passed through to merchants this year for eCommerce transactions. Both Visa and Mastercard are pulling forward their increases in interchange rates for eCommerce transactions. The fee increases impact most merchants that have an eCommerce channel. This would include any buy online pick up in-store (BOPIS) omnichannel use cases since these transactions start in an eCommerce environment, and it is where the authorization occurs. Visa is also offering a discount on interchange on eCommerce transactions if you utilize the Visa Secure Credential Framework (network tokens). This is a decision that each merchant needs to make by evaluating their business and determining what is best. Make sure you look at the resources that MAG has around information on network tokens. For the most accurate impact to your business, you should reach out to your acquirer/processor, and they will provide a complete description of the possible impacts to your business for the changes coming in April.
The next impact worth mentioning is a change that Mastercard is instituting this year is around their Digital Enablement Fee (DEF) that they will assess for all Commerce transactions. The current DEF rate is .01% or one basis point of all settled eCommerce transactions. Mastercard is increasing the DEF to .02% or two basis points of all authorized eCommerce transactions (minimum billing of $.02 and a max of $.20). They are doubling the fee (and for some small ticket merchants more than doubling the fee due to the minimum) and are now including all authorizations and not just the settlements. As part of this fee increase, Mastercard will include several of their fraud solutions as part of the DEF at no (additional?) charge. These fraud solutions include Account Verification Service (AVS), CVC2 checks, 3DS, and Account Updater. Merchants using these Mastercard services should no longer be assessed these fees after the changes go into effect. The impact of this change will vary merchant by merchant depending on how many of the fraud services used. If you do not currently use these products, the impact of the coming fee changes will be much more significant. Once again, reach out to your acquirer/processor to ensure that any fees as part of the fraud services you may be utilizing are no longer passed through after the change.
Another impact is the addition of a new Mastercard product/service around installment loan offerings for their Financial Institutions (FI) starting in April. For the customer experience, the FI will issue a virtual card to the customer, who will then use it in a digital wallet. Another scenario for online purchases is the customer agrees to an installment plan with their bank and then transacts at a merchant. The merchant will be paid as they normally do since this is a traditional payment card transaction. The merchant will pay an interchange rate plus an installment fee that is taken as part of the normal interchange collection process. This will go live in April 2022 unless merchants follow the opt-out process with their acquirer. If the merchant opts out, the customer will get a general decline at the merchant point-of-sale (POS) when trying to complete their transaction. Check with your acquirer/processor on the impact of accepting these transactions and understanding your option to opt out.
One additional impact to highlight is a change coming from Visa around auto-fill of payment account information by the web browsers. Visa announced that it will implement a new requirement for browser-based transactions to no longer auto-fill a Personal Account Number (PAN) in the payment card field, and moving forward a network token will replace the card PAN. Customers will select their payment card of choice from a list presented, and a network payment token will replace the PAN. With the use of network tokens on eCommerce there could be several impacts including the ability to route PINless debit transactions to alternative networks, the ability to link the card with loyalty programs, and ability to service customers that may be unaware the card they provided was a network token. Visa is offering an opt-out process as well for merchants that do not want to participate in the network tokens for auto-fill. For more information on this change, reach out to your acquirer/process to understand the impacts to your business and what your options are for accepting or opting out of this process.
Below are additional fee changes to watch for as you review the Spring Release from your acquirer.
This year will have a very big impact across the board for merchants with all the fee changes that have been on hold as well as the new changes that the networks are making around other eCommerce fees, installments, and network tokenization. The MAG has many helpful resources on their website to assist you in getting the answers you need. One place I go to frequently under the education tab is “All Educational Resources.” The resources will help educate you on the changes coming and what action steps you can take to help your business. The MAG also has the Collaboration Committee and the Advocacy and Communications Committee, which offer opportunities to hear what is going on with other merchants and provide information on how to advocate for merchant payments acceptance. If you are interested in participating with any MAG committees, check out all the committee information on MAG website under “Engagement” then click on “Committees.” Also, reach out to your acquirers and ask questions to help them understand your merchant perspective. Your conversations with them will illuminate what is important to you so that you can continue to stay ahead, or as ahead as you can, with the ever-changing networks’ enhancements/mandates/releases. It is critical to have awareness of and understand the networks’ policies and rules to make the best decisions for our merchant companies.