New regulation that comes into force today will set interchange caps of 0.3% of the transaction value for credit cards and 0.2% for debit cards on all domestic consumer card transactions across the EU.
Payments experts CMSpi calculates that merchants could save an average of 25% on existing credit and debit card transaction fees – amounting to £650 million a year for the UK retail industry. But this will only happen if payments companies pass on the savings in their entirety.
The IFR will impact different merchants in different ways, depending on a number of factors such as their transaction profile and the charging structure they use. Merchants that deal with a high volume of credit card transactions will see the greatest benefits, with Visa and MasterCard, for example, cutting their interchange fees from 0.77% and 0.7% respectively down to 0.3% – reductions well in excess of 50%.
“IFR offers the potential of significant savings for retailers. But we fear that payments companies will not pass on savings in their entirety to merchants and a lack of transparency around some card fee structures means that many merchants could see little benefit from the changes,” explains Brendan Doyle, CEO of payments consultancy, CMSpi.
“Many merchants – particularly small-and-medium-sized businesses – are on a ‘blended’ pricing structure, which combines all the various components of a card transaction fee (such as the scheme fee, the processing fee and, of course, the interchange fee) into one charge called the merchant service charge, or MSC,” continues Doyle. “This blending structure makes it extremely difficult for merchants to identify if the savings are being passed on to them or not.”
Merchants need to ensure that they benefit from IFR savings, and those on a ‘blended’ pricing structure need to be particularly vigilant of this. It is therefore vital that merchants seek advice and review their pricing structures in order to ensure the true extent of the vast savings possible from the IFR’s implementation reaches their pockets.