Even when you work in the payment processing sector, it’s very difficult to stay fully up-to-date with the latest card processing fees. That’s why we’re collecting all the fee change news into one place. In this article, you can scroll through the past five years of card processing fee updates to see how the industry got to where it’s at now.
2018: Non-Secure Transaction Fees
Non-secure transaction fees are one of the extra costs hidden on the back pages of your monthly statement. If we’re being cynical, it’s also a cost that your merchant acquirer hopes you don’t notice.
After the introduction of interchange fees in 2016, merchant acquirers have been hunting for a way to increase fees without raising debit and credit card rates. Non-secure fees, which hardly anyone pays attention to, were the obvious choice.
To save you several hours of research, we contacted the UK’s main acquirers to ask about their definitions of non-secure and the extra charges they began levying in 2018. Here’s what they told me.
|Acquirer||Definition of CNP Non-Secure||Premium|
|Allied Irish Bank||All CNP transactions||Additional interchange costs and scheme fees|
|Barclaycard||Any CNP transaction without CVV2 and AVS||0.85%|
|Elavon||All CNP transactions||0.15%|
|EVO Payments||All CNP transactions||0.13% - 0.5% (Depends on card type)|
|First Data||All CNP transactions||0.5%|
|Global Payments||All CNP transactions||0.7%|
|Lloyds Cardnet||No definition||nil|
|WorldPay||All CNP transactions||14p (debit) and 0.25% (credit)|
Looking over the information, there are a couple of important things to pull out. First, the new industry norm is to classify all CNP transactions as non-secure. Previously, merchants who provided CVV2 and AVS data could avoid non-secure charges. Well, not any more. Second, Lloyds Cardnet is the clear winner, charging no additional fees for CNP transactions. A word of caution, though. If you are a predominately CNP merchant, Lloyds Cardnet will factor this into your headline debit and credit rate, which will be higher than a comparable face-to-face business using chip and PIN. Third, Global Payments is by far the most expensive provider, charging an additional 0.7 percent on all non-secure transactions.
2018: Debit and Credit Card Surcharge Ban
Perhaps the biggest change in card processing fees in recent memory was the 2018 surcharge ban. But before we dig into the specifics, let’s quickly define what a surcharge is.
A surcharge is an extra fee charged by a merchant when receiving a payment by cheque, credit card, charge card or debit card (but not cash) which at least covers the cost to the merchant of accepting that means of payment, such as the merchant service fee imposed by a credit card company.
For example, if a customer wants to pay a bill using a Visa debit card and it’s going to cost the merchant £10 to process that the payment, the merchant would add the £10 fee onto their bill.
At its peak, surcharging was very lucrative. Big companies, especially travel and ticketing companies, charged exorbitant fees in a bid to pad their bottom line. In 2010, the Office of Fair Trading (OFT) estimated that consumers shelled out an unbelievable £316 million for surcharges. But that all changed in on 6th April 2013.
In a bid to limit excessive surcharge fees, the Consumer Rights (Payment Surcharges) Regulations 2012 set limits on the amount merchants could charge when their customers pay by credit or debit card. The regulations came into force on 6th April 2013 and effectively banned merchants from charging any more than it cost them to process a payment. However, that was vague and most companies kept charging huge surcharges.
In 2018, after some gentle guidance from the EU, the government finally introduced some harsher legislation. From 13th January 2018, merchants were banned from charging any surcharges on customers for any payment type.
2017: Card Scheme Fees
In 2017 we enjoyed yet another card processing fee increase from the acquirers. But why this time? Simply put, because their card scheme fees are going up. And as usual, it seems that some acquirers are using the opportunity to profiteer at the expense of merchants.
Card scheme fees are a cost to your acquirer and are taken into account when setting the merchant service charge (MSC) rate they charge you for each transaction.
MSC rate = interchange + card scheme fees + acquirer profit
We all know what interchange is by now (click here for a reminder) but less is known about card scheme fees. Interchange rates are publicly published and in Europe are highly regulated by the EU. Card scheme fees, however, are not publicly disclosed and are unregulated.
The calculation of Interchange is relatively simple compared to card scheme fees. Interchange is set as one rate per card type with variants if the card is non-UK issued or is accepted without chip & pin.
However, card scheme fees are made up of a myriad of different charges, including:
- Variable fees per transaction. These are dependent on card type, geography and acceptance method.
- Fixed fees, unrelated to any transaction. Some of these are dependent on the acquirer volume processed and card scheme services used by the acquirer.
This makes it nigh on impossible for a merchant (and some acquirers) to work out the scheme fees applicable on any given card transaction.
However, as any increase is ultimately passed on, merchants should take an interest when the card schemes hike their fees. The January 2017 increases equate to roughly 20 percent for chip and pin and around 40 percent for CNP and eCommerce transactions. Visa debit transactions which have gone up by considerably more—up to 100% in some instances!
2016: UK Card Processing Fees
Card processing fees certainly had their ups and downs in 2015 and we expected 2016 to be relatively quiet. Well, it wasn’t. In 2016, Visa removed the interchange cap on consumer debit fees, resulting in a significant fee increase for merchants with average transaction values (ATV) above £245.
Businesses like garages, travel agents and other B2B businesses that sell other high-value goods or services felt the impact the most.
On 1st March 2015, Visa Europe changed its debit interchange rate from a fixed rate per transaction to a percentage-based fee.
- Old rate: 8p
- 2015 rate: 0.2% + 1p
This resulted in significantly higher fees on all transactions above £35 and was a particular headache for merchants with high-value transactions in the hundreds or thousands of pounds.
To give some respite, Visa Europe capped their debit interchange fees at 50p for chip and pin with higher caps for business debit and CNP/non-secure eCommerce transactions.
Most acquirers passed on the benefit of these interchange caps in some form to their customers with high ATVs, either through interchange plus pricing or fixed-rate debit charges marginally above the cap.
|Card/Transaction Type||Cap||Cap Threshold|
|Consumer debit (chip and pin/secure eCommerce)||50p||£245|
|Consumer debit (CNP/non-secure eCommerce)||£1||£495|
|Business debit (chip and pin/secure eCommerce)||75p||£370|
|Business debit (CNP/non-secure eCommerce)||£1.50||£745|
If your average transaction values are below the point the cap kicks in, September’s change is unlikely to impact you. We hope acquirers don’t use the change as a profiteering opportunity by increasing fees for lower ATV merchants as there is no basis to do so.
However, if you are a high ATV merchant, the price increase could be very important. Here are some examples for consumer debit chip and pin transactions, which previously all incurred only 50p of interchange.
|Transaction Value||New Interchange Cost||Increase|
Bear in mind that what we show above is the change in interchange costs, i.e. the cost that Visa levies on acquirers (WorldPay, Barclaycard, etc).
The acquirers then charge a margin on top of their interchange cost and that total (the Merchant Service Charge ) is what you, the merchant, pay.
The big question is:
To what extent will the acquirers treat this as a profiteering opportunity and pass on increases greater than the interchange increases?
In recent years, every time that interchange has changed acquirers have profiteered by passing on extra cost or not passing on the full benefit of reductions.
However, it would be a bold move to profiteer on the back of this change as we expect a large outcry from affected merchants.
After all, these are significant increases. For example:
- A travel agent with an average transaction value between £500 and £1,000 will see debit processing costs double or quadruple. Businesses with even higher average transaction values,
- A used car garage that sells cars for between £5,000 and £10,000 will see costs rocket by thousands of percent.
2015: UK Card Processing Fees
2015 is set to be the most volatile year to date for card processing fees. This is the year that the European Union (“EU”) cap on interchange fees will take effect in the UK. Good news for card-accepting businesses? Will it mean lower card processing fees? We are a little skeptical based on past form of some merchant acquirers.
In 2015, the EU will implement a new cap for card processing fees. They are:
- Debit interchange: 0.2% (currently 8p)
- Credit interchange: 0.3% (currently 0.77% to 0.8%)*
The changes will impact both Visa and MasterCard but so far only Visa has confirmed its revised debit interchange rates to its members.
We expect the revised Mastercard debit and revised credit interchange to be announced later in H2 2015 and probably at around the maximum level of the EU cap.
* Rate applies to chip-and-pin non-premium transactions.
Visa has already announced its new interchange rates for UK debit cards to its members:
0.2% of transaction value + 1 pence per transaction (capped at a total of 50p) for chip and pin transactions.
These changes will take effect as of 1st March 2015. That means that merchant acquirers should begin to re-price their portfolios in January or February to take account of this change in their cost base.emember
Remember, interchange is a cost to merchant acquirers and is recovered from merchants through the Merchant Service Charge which merchants pay. Non-secure transactions carry an additional cost of 10p per transaction and Visa business debit card transactions are capped at a higher amount.
The UK debit card interchange is currently based on a fixed rate per transaction of 8p for chip and pin transactions. Acquirers add a markup then typically charge MSC of 12p-14p per transaction to SME merchants.
Debit card costs (unlike credit card costs) are unchanged irrespective of the value of the transaction. Merchants currently pay the same cost for a £5 debit transaction and a £200 debit transaction.
However, when interchange costs change from a fixed rate per transaction to a percentage of transaction value, higher Average Transaction Values (ATV) will incur higher interchange costs (and vice versa) and, in isolation, you would expect merchant acquirers to pass on these costs/savings to merchants through higher or lower MSC.
As you can see, cheaper ATVs will incur an interchange cost below the current cost. However, as ATVs increase, the revised cost gets significantly larger. An ATV of £245 will incur interchange costs of 50p — over 6 times the current interchange cost of 8p.
- An ATV of £35: interchange costs are unchanged at 8p per transaction
- An ATV <£35: interchange costs are marginally cheaper
- An ATV >£35: interchange costs are significantly higher
We have spoken with a few merchant acquirers and asked this exact question. All admit they haven’t yet fully got their heads around what exactly they will do and are busy running various scenarios through their pricing models, trying to find the optimal strategy.
Customer re-pricing is a time of great opportunity and risk for merchant acquirers. How much extra profit can they squeeze out without unnecessarily losing customers?
These new interchange rates are so wide-ranging they offer an unprecedented level of opportunity, risk and uncertainty.
The impact on acquirer pricing and their reaction to it is dependent on a number of factors:
- The range of transaction values undertaken by a merchant
- Your card mix
- The credit interchange and MasterCard interchange changes
- Competitor strategy
Although this is an industry-wide change, not all merchant acquirers will adopt the same re-pricing strategy and there will be plenty of differing approaches so shop around and find the best deals.
Compare Card Processing Fees You Save?
With the structure and specifics of card processing fees changing almost every year, it’s tough to make sure you’re getting the best deal. If you want the best deal, you have to compare offers from companies called Independent Sales Organisations (ISOs). ISOs represent hundreds of merchants and negotiate rates on their behalf, meaning they can drive down the fees payment processors charge.
At Cardswitcher, we let you compare deals from the UK’s leading ISOs, ensuring you get to see what the market really has to offer before you make up your mind. To get started, click here to go to our comparison engine.