It never made sense to me that regulators, seeking to reduce merchant fees everywhere from Australia to Venezuela, looked only at interchange and not the associated processing fees. In other words, when the mighty European Commission mandated a reduction in credit card interchange from 175 basis points down to 30bp, they failed to account for the fact that merchant acquirers and processors would still continue their tariffs.
Now, it seems, some regulator finally read a credit card processing statement. As today’s read mentions, UK requlators are now taking a swipe at merchant fees, the dark and cloudy space behind interchange.
The Payment Services Regulator (PSR) announced a ‘Market Review into the supply of card-acquiring services’ on Tuesday in light of complaints about the rising costs to retailers of accepting card payments.
However, the IFR did not cap the fees merchants pay to card acquirers. It assumed competition between the acquirers would limit any tendency to increase fees. In practice, this has not happened.
As regulators talk across borders, this will likely have global implications. Watch out, Independent Sales Organizations (ISO) or Member Service Providers (MSP) who serve small merchants. They will be looking at items such as “statement fees”, “chargeback fees” and “enhanced services.” There may be reductions soon.
The review will consider the following:
Acquirers not passing on to merchants the savings they made from the IFR cap on interchange fees.• A lack of transparency around the fees merchants must pay to accept card payments.
Barriers “making it hard” for merchants to compare and switch card acquirers.
Barriers to “services that would help merchants compare and switch” acquirers.• The fees card-scheme operators charge to acquirers (‘scheme fees’), and the rules they apply, which “favour larger acquirers”.• A “significant” increase in the scheme-fee portion of fees merchants pay to acquirers.
Given the regulatory trend towards cost accounting, we might soon understand if companies like Square, who charge 1.75% for in person payments, or 2.75% for online transactions, will meet the regulatory test in the UK.
Overview by Brian Director, Credit Advisory Service at Mercator Advisory Group