Global card scheme giant Visa Inc has begun offering big incentives to some local small and medium sized retailers choosing to route their debit payments to its processing network.
Since the start of October Visa has been giving some small merchants massive discounts on interchange fees as part of a wider effort to reclaim market share from domestic payments scheme, Eftpos Australia.
As reported earlier this month in Banking Day, Eftpos has been growing its share of the debit payments processing market after launching a new online service in July 2022.
Eftpos, which is also benefitting from broader take-up of least cost routing by merchants, now processes around a quarter of all Australian debit payments made online.
However, Visa has decided to respond to the strategic threat posed by Eftpos with heavily discounted pricing that will result in small merchants paying interchange fees equal to the strategic rates paid by some chain retailers.
According to a memo sent by Visa to card issuers and acquiring banks earlier this year, small retailers are now eligible to pay interchange fees at a flat rate of as low as 2.2 cents (inclusive of GST) when they accept Visa debit payments over the counter.
The offer marks a potential turning point in the battle between Eftpos and the international schemes because it will deliver material savings to some small merchants using the Visa processing network.
While large retailers such as Woolworths for many years have enjoyed sharply priced strategic rates as low as 1 cent per transaction for directing debit payments to Visa, small businesses have been forced to cop interchange fees of up to 20 basis points on the value of a debit transaction.
Under longstanding arrangements, a small retailer selling a pair of jeans to an in-store customer for $200 would incur an interchange fee of up to 40 cents on the transaction.
But under the new Visa offer the retailer is in line to pay a flat interchange rate of only 2.2 cents.
The interchange fee is a component of the total merchant service fee paid by retailers when they accept debit card payments. Other components of the merchant service fee include scheme fees and costs incurred by acquiring banks.
The revised pricing being offered to small merchants under the program is equivalent to the level 4 strategic rate for large retailers in Visa’s Australian interchange schedule.
Visa stressed in the memo that small merchants would need to meet eligibility requirements to qualify for the “preferential interchange rate”.
“Effective Central Processing Date (CPD) 1 October 2023, Visa will make available a new Acquirer Small and Medium Business (SMB) program in Australia to deliver a competitive rate for partners that support the continued growth and acceptance of SMBs (small and medium businesses) on the Visa network,” Visa stated in the memo.
“While participation is optional, acquirers must fulfill the requirements of the program to qualify for participation.
“The preferential interchange rate will apply on eligible domestic Visa Debit transactions at eligible merchants.”
Banking Day yesterday asked Visa to clarify the eligibility criteria for the new offer that were cited but not explained in the memo sent to bank acquirers.
Visa, which is renowned for its robust approach to marketing, was reticent about sharing details about the program.
A Visa spokesperson declined to explain the eligibility requirements or disclose details about the number of small and medium merchants that had already been migrated to the new interchange rates.
“We can't share further details on program participation as those agreements are confidential,” the spokesperson said.
“For information on specific small business participation, you'd need to speak with the acquirers who manage the direct relationships with those businesses.
“Currently, we have not defined a minimum timeframe for this program.
“Ultimately, this program is about supporting the digitisation and growth of Australia's small businesses.”
In the memo seen by Banking Day, Visa indicated that eligibility criteria were set out in a document which sits behind a password-protected section of its website.
“Acquirers (and their registered payment facilitators) seeking to participate in the new Acquirer SMB program must comply with program requirements listed in the Australia Acquirer SMB Program Guide, including the application of the Merchant Volume Indicator (MVI) on eligible transactions,” Visa said in the memo.
According to the memo, Visa also indicated it was slashing the interchange costs borne by small retailers for accepting Visa transactions online.
From 1 October Visa set a flat interchange rate of only 3.3 cents (including GST) on tokenized online purchases valued above $30 for merchants qualifying for the program.
For non-tokenized online transactions over $30 Visa has set a flat interchange fee of 6.6 cents(with GST).
Banking Day last night began contacting Australian banks and payments processors about their implementation of the new Visa program.