Merchants had a small win in the payments arena last month, when the Reserve Bank implemented changes to its cents-based interchange fee cap, but analysis of the changes by payments consultancy CMSPI shows that some merchants will bear higher costs.
The RBA flagged the changes in its Review of Retail Payments Regulation last year. It cut the 15 cent cap on debit interchange fees set in cents-based terms to 10 cents for transactions on both single network debit cards and dual network debit cards.
Interchange fees are paid by the acquiring bank to the issuing bank on debit card transactions and are passed on to merchants as part of the merchant service fees charged by the acquiring bank.
These fees can form a significant part of a merchants’ overall costs and have been growing as consumers switch from cash payments to cards.
The RBA said that, with the ongoing decline in the average value of card transactions, the increasing practice of scheme operators setting debit interchange fees at the cents-based debit interchange cap of 15 cents has resulted in “unreasonably high costs” for low-value transactions at smaller merchants.
CMSPI has reviewed the impact of the change. It said that in response to the introduction of the new cents-based cap, Visa, Mastercard and eftpos all made changes to their interchange rates.
In a couple of cases that involved switching from a cents-based charge to a percentage charge, capped at 20 basis points. Visa changed the way it charges for card presents tokenised contactless transactions and Mastercard changed the way it charges for card not present standard transactions.
CMSPI analyst Athena Zhang said that for merchants with average transaction values over A$75 the move from a fixed (cents based) fee to a percentage fee for Visa CP tokenised and Mastercard CNP standard could result in a net increase in costs.
“The cost of these percentage fees will increase along with the transaction size. Since the average transaction value for ecommerce transactions is slightly above $75, most ecommerce merchants ill ne negatively affected by these two card types.”
Zhang also said it is important for merchants to check that changes were flowing through to their business.
“Quantifying the impact of interchange fee changes for each merchant can become incredibly complicated especially for merchants with multiple considerations. With constantly shifting interchange rates, partnerships considerations, varying optimal routing structures for different rates, and even inconsistent reporting from acquirer to acquirer, often fee changes do not flow through correctly to the merchant.
“Conducting an invoice audit is essential to ensure savings are being passed through correctly from your acquirer and that your business is not heavily impacted by mischarges.”