At the end of August, the Wall Street Journal exclusively revealed that Visa and Mastercard were planning to raise the fees merchants are charged when customers use credit cards to pay. Depending on the payment processor, these fees may be passed onto merchants as a flat rate, as part of a tiered pricing model, or as the wholesale rate with a nominal charge on top, as in the case of Interchange Plus.

The WSJ saw documents and spoke with sources close to the matter who said the changes would largely apply to e-commerce sales and be instated in October and April. Consulting firm CMSPI told the WSJ that the rises could add $502 million a year to merchant costs. It added that while more than half of that will be due to changes in network charges, the rest will be provided by interchange fees, also known as swipe fees.

According to the WSJ, network charges – fees charged by the likes of Visa and Mastercard to facilitate transactions and maintain their payment infrastructure – are both set, and pocketed by, card companies. Interchange fees are the cost of processing a transaction and are paid by a merchant’s bank to the cardholder’s bank.

Network charges represent significant sources of profit for card companies, particularly Mastercard and Visa, which account for 99 percent of all card transactions worldwide. According to The Nilson Report – a globally recognized authority on card payments – merchants in the US paid around $93 billion in credit card fees to Mastercard and Visa in 2022. That figure was $33 billion a decade prior. This extra profit can, at least in part, be attributed to the rapid expansion of the e-commerce industry and the rise in convenient digital payment methods.

While the consumer may not even be aware of these credit card fees, they are important points of consideration for merchants when deciding their payment processor. Rate hikes can disproportionately impact SMBs, especially when they already struggle with inflation and higher interest rates. Unlike larger companies, they may not be able to absorb the cost and must pass it on to consumers by raising prices. This could erode their competitiveness and affect customer loyalty. Some businesses have tried to offset the transaction fees with cash discounts and credit card surcharges.

Source: Pexels

Mastercard and Visa both disputed the Journal’s report shortly after publication. The former released a statement asserting that it has no plans to raise interchange rates or network fees in the US this fall. It also clarified that the fee for its Authorization Optimizer service, which the report said will be increased, is unrelated to interchange and only for the payment processor’s consideration. Visa stated that the article was “misleading,” maintaining its interchange fees have been constant for a decade and that it has introduced programs to lower them for small businesses in the US.

Nevertheless, there have been some recent changes that paint a different picture. Last year, Visa and Mastercard both increased their cross-border interchange fees for debit and credit card transactions by 0.1 percent and 0.35 percent, respectively.

At the time, the Payment Systems Regulator in the UK said it had not seen evidence that the costs of operating payment services have increased to warrant the fee hikes from card issuers. As recently as this month, there have been further changes to Visa’s interchange rates in the US and Mastercard’s in Canada that may impact payment processing fees. Visa’s changes include eliminating older international fees, fee increases for specific consumer interchange card products, and introducing a digital commerce service fee.

Mastercard is introducing a new pre-authorization fee and a fee for the Authorization Optimizer service mentioned in the WSJ’s story, which allows merchants to retry processing a card when a transaction fails. You can read about what this means in more detail here.

But changes being made to interchange fees aren’t going unchecked. In March, a US federal appeals court affirmed a $5.6 billion antitrust class-action settlement relating to interchange fees. It verified claims that Visa and Mastercard overcharged retailers with fees and stopped them from directing customers toward cheaper means of payment. Furthermore, a bipartisan bill known as the Credit Card Competition Act, reintroduced in June, seeks to empower merchants to process Visa and Mastercard payments through alternative networks.

Reports that swirl around potential hikes in interchange fees by Visa and Mastercard understandably raise concerns for SMBs about the impact on their bottom line and competitiveness. However, choosing a payment provider that prioritizes transparent pricing could remove much of the pressure. An example of such a provider is Helcim, whose commitment to a clear, fair pricing structure acts as a shield against unpredictable fluctuations in interchange fees.

With a model based on Interchange Plus, Helcim passes on the “wholesale” cost of the transaction plus a small markup, reducing the impact of fee hikes. If the wholesale price goes down, savings on the transaction are passed on to the merchant, which is not the case with a flat rate. Helcim has a track record of saving merchants an average of 25 percent compared to other payment processors, a significant financial relief in an environment of rising costs. In addition to Helcim’s transparent pricing structure, it provides merchants with discount tiers that progressively reduce markup as processing volume increases.

Helcim’s policy is for no hidden monthly or additional fees, adding a layer of financial security by ensuring businesses don’t face unexpected outlay.

When sending an invoice, business owners can also enable ‘Helcim Fee Saver.’ Here, the credit card processing fee is automatically passed on to the customer as a convenience fee. This offers a hassle-free way of saving on processing fees while ensuring the company abides by the complex rules on passing on their fees. Merchants using the Helcim Fee Saver save an average of three percent in processing fees.

With Helcim, merchants have access to a user-friendly platform, including in-house customer service support that offers personal help when businesses need a reassuring human touch in uncertain times.

Overall, Helcim provides a seamless way to process payments, whether it’s online, in-person, or both. Getting started takes just minutes and doesn’t involve any paperwork, contracts, or startup fees. Sign up for a free account today to begin safeguarding your business from fluctuations in credit card fees.

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As of October 6, 2022, business owners in Canada have been able to pass on their credit card processing fees to customers. This covers the cost of the transaction to the card brand networks and banks and, prior to then, was typically incurred by merchants. However, it can now legally be charged to the customer as a ‘surcharge’ and is capped at 2.4 percent of the purchase price.

This change was brought about after Visa, Mastercard, and some banks were served multi-million dollar class action lawsuits claiming that the processing fees they were charging Canadian business owners were restrictive and too expensive. These companies therefore agreed to start allowing merchants to pass on these fees to their customers.

Applying surcharges to purchases has been legal in the majority of US states for the best part of a decade, with the exceptions of Connecticut and Massachusetts, and are capped at around 4 percent. This is not the only way this fee can be passed on to customers – businesses can also increase the prices of their products or apply a self-defined convenience fee. Different rules and regulations apply to surcharges and convenience fees which can vary depending on the jurisdiction.

Source: Helcim

However, the total payment processing fee charged by payment providers is not just the ‘wholesale’ interchange fee, which varies depending on the type of transaction and card, and other factors. There are various pricing models a payment provider can charge businesses, including a flat rate fee or ‘Interchange Plus’ fee – both of which cover the interchange fee and the payment provider’s margin.

Flat rate fees do not change even with a fluctuating interchange fee because the provider applies a flat rate fee no matter the cost of the interchange rate. Interchange Plus is when the provider applies a fixed margin on top of the interchange fee, so it varies depending on the latter. This means that any savings incurred by a low interchange rate gets passed on to the business, rather than being absorbed by the provider as in the case of flat rate pricing.

The pricing model – be it flat rate, Interchange Plus, or other – is chosen by the merchant service provider. This should be considered by the business owner when deciding on a provider to work with, and they should pay particular attention to the types of transactions they process to get a sense of how much they could be saving with one pricing model or another.

Source: Helcim

Another important factor is deciding how to cover this cost – do you pass the whole processing fee to the customer, or cover part or all of it yourself?

In September 2022, nearly 4,000 Canadian businesses were surveyed on how they planned to deal with credit card processing fees after the change was enacted. While 28 percent said they would increase product prices to cover the cost, almost a fifth said they would be passing on the fee to the customer. A further 15 percent said they did not plan to surcharge and would continue absorbing that cost.

The best option for your business is likely tied to how you intend to remain competitive. If providing customers with the option of paying in a variety of methods makes the business uniquely convenient, then you may be more inclined to cover the fee. However, if your competitors are willing to pay it on the customers’ behalf, then you may want to do the same.

In either scenario, having the lowest possible processing fee is paramount. While it is crucial for you to get the lowest rate, most payment companies do not provide a clear breakdown of their fees, nor are they transparent about the components that constitute the final charge and the exact margin applied. Be sure to ask your payment provider about their pricing model beforehand. The good thing about Interchange Plus providers is that the industry standard interchange rate is passed directly onto you with a small set margin applied on top.

Businesses are also prone to pitfalls surrounding the regulations when it comes to passing on the surcharge or overall processing fee to the customer. These consist of anti-competitive laws, rules specific to the card brand, surcharge caps that vary by jurisdiction, and more. Trying to abide by them all is challenging, but failing to do so can lead to legal and financial repercussions. It is, therefore, crucial to communicate with your provider about your intent to surcharge so they can help you navigate all the regulations, making them as simple as possible for your business.

One payment company that has prioritized this is Helcim. When sending an invoice or when a customer pays online via HelcimPay, business owners have the option to enable ‘Helcim Fee Saver.’ When this is switched on, the credit card processing fee – which is based on the Interchange Plus pricing model – is automatically passed on to the customer. If your customer chooses to pay by ACH bank transfer, you will pay for the processing fee, so the customer benefits from no additional costs. Fortunately, the ACH processing fee is only 0.5 percent + 25¢ and capped at $6 – much lower than the credit card processing fee. This simple feature saves your business the hassle of navigating complex rules on surcharging, by automatically applying the correct processing fee for the card brand used.

Helcim’s pricing model is widely regarded as one of the most transparent and affordable. For in-person payments, the provider only applies a margin of 0.4 percent + 8¢ on top of the interchange and card-brand fees. For online and manually-keyed payments, it’s 0.5 percent + 25¢. The average processing fee for an in-person payment therefore turns out to be 1.94% percent + 8¢ and for online or manually-keyed payments it’s 2.51 percent + 25¢. Merchants save an average of 25 percent when they switch to Helcim.

To find out more about how Helcim can help you save money on every sale, and give all parties in any transaction full transparency (and options), contact the sales team today.

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