Global Payments has now written to merchants advising of new pricing starting 1 January 2016. Many observers and merchants had expected material fee reductions in light of the EU’s new interchange cap legislation effective 9 December 2015. What we are seeing is that these interchange reductions are not being passed on in full and that merchant acquirers are instead boosting their own profits.
New rates from 1 January 2016
Heres a letter for a large SME. The backdrop against which to consider these new fees is that the EU has forced Visa/MasterCard to cut consumer credit card interchange to 0.3%, debit to 0.2% +1p and hasn’t touched commercial cards. So the merchant should be seeing a large overall fee reduction (c.37% by our calculations). Lets have a look at the extent to which Global Payments has passed on this reduction to customers or has taken the opportunity to profit.
How much of their savings has Global Payments passed on ?
You can see from the table below that where interchange has been cut by the EU and Visa/MasterCard (consumer credit and non-secure fees), Global Payments has only passed on a fraction of that benefit to the merchant. What makes it worse is that for other card types where no changes have been made to interchange, Global Payments has actually increased fees, mainly in Commercial credit cards, and by a significant margin :
|Card type||Interchange||Global Payment Fee|
|Commercial credit||0%||+0.4% to +0.8%|
We looked at the merchants overall costs and concluded that the interchange reductions, if passed on in full, should have resulted in a 37% fee reduction for the merchant – quite material. What the merchant actually received was a 16% fee reduction. Welcome? Yes, but its significantly less than the EU intended and demonstrates that Global Payments kept the majority of the benefit.
A little more detail….
- Debit – the Visa changes already happened back in March so you would expect no change. This is the case for consumer debit but for commercial debit, Global Payments has added a 0.06% fee (despite their interchange costs being the same as consumer debit);
- Consumer credit – as you can see, Global Payments are only passing back 0.1% to the merchant and are profiting from the remaining 0.4%;
- Commercial credit – Global Payments used to add an extra charge for commercial credit which was broadly the same as the higher interchange cost for this card type….fair enough. This did lead to their statements appearing complex because of the range of different interchange costs. They have now simplified this into 1 extra charge for each of Visa (+1.43%) and MasterCard (+1.56%) on top of the Headline Rate. This now makes the overall rate for Commercial cards 2.52% – 2.65% for this merchant which is incredibly expensive and includes additional profit of 0.4% (corporate cards) – 0.8% (business cards) for Global Payments. Bear in mind neither the EU, Visa nor MasterCard made any changes to commercial card interchange – these price increases are solely down to Global Payments ;
- Non-secure – both Visa and MasterCard have now removed higher interchange charges for non-secure transactions. Global Payments has retained a 0.1% premium which is almost all pure profit. Yes, there is still higher interchange on non-secure MasterCard commercial cards but this is adequately dealt with in the charges shown above. Also there is higher interchange for non-secure Visa debit (10p) but Global Payments pass this on in addition to the 0.1% non-secure fee and also include a further 1p profit element.
What to do ?
Merchants should be looking for the following fee reductions in December if their acquirer is being fair and passing on the full interchange reductions :
- Consumer credit : -0.5% MasterCard, -0.47% Visa
- Non-secure fees : removed entirely except Visa debit +10p, MasterCard commercial cards +0.15% to +0.3%
What we are noticing is that once again, loyal customers who do not switch are receiving very little of these benefits whilst switchers are being offered a higher proportion of the benefits. As always, shop around and benchmark your pricing as acquirers are taking a range of very different approaches and there is value in switching.
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