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Interchange Fees Increases Delayed Until April 2022

March 19, 2021

Big changes for interchange fees were on the horizon for both MasterCard and Visa. However, facing some federal scrutiny and recognizing the the US economic recovery is at a fragile stage, both companies decided to delay these increases until April 2022. Originally, these increases were slated to go into effect April 2020, but due to the pandemic and widespread economic damage, the interchange fee increase was delayed.

While the new year has brought itself hope for businesses who are looking forward to operating as usual, this interchange fee hike was weighing on the minds of many small businesses that are just beginning to get back on their feet. Merchants know that any interchange rate increase is going to directly affect their profitability.

When Visa originally revealed these proposed increases, the bulk of the effect was for card-not-present transactions such as online, e-commerce, and phone orders. For a regular Visa card, the effective rate on a $100 charge was set to rise to 1.99% from a current average of around 1.90%. This is just the interchange cost and doesn’t include things like processor markups and other fees. For a high end rewards card, the rate would rise to around 2.6% from a current 2.5% effective charge on a $100 transaction. Again, this includes interchange discount rate and per item transaction fee, but is only a portion of the overall fees that merchants pay.

Fortunately, Visa and MasterCard have both decided to delay these increases in light of the fragile economic recovery underway. Since these interchange rate increases would have disproportionately impacted online e-commerce merchants, any shocks to the system could have derailed businesses that have otherwise been a bright spot in a pandemic-battered economy.

In addition, Visa and MasterCard faced scrutiny from lawmakers in Washington over these proposed interchange rate adjustments. Sen. Richard Durbin (D., Illinois) and Rep. Peter Welch (D., Vermont) sent a letter to the CEO’s of MasterCard and Visa directing them to reconsider interchange fee increases in light of COVID19’s detrimental effect on companies.

Interchange fees are determined by credit card issuers through a complex set of negotiations between banks, merchants, and card associations. The interchange increases that were being proposed by MasterCard, now delayed along with the Visa increases, had been targeted at recovering increased expenses for fraud mitigation and security challenges associated with the recent pandemic-induced boom in e-commerce and online transactions. However, both Visa and MasterCard acknowledged that other industry types, such as grocery stores and restaurants, would also be negatively impacted at a time when they can scarcely afford any unexpected expenses.

While no one likes fee increases, the news isn’t all bad. As part of adjustments in October 2020, large grocery chains saw a decrease in interchange expense ranging from 15 to 30 basis points. Small ticket merchants such as restaurants and retailers, with average transactions below $8.88 also saw some modest relief.

If you’re a business owner processing credit card transactions – you might be wondering where to go from here. Well, first you can breathe a sigh of relief that you shouldn’t be impacted by any cost increases for Visa and MasterCard interchange rates in 2021. However, make sure that your provider hasn’t passed any increased costs through or changed your rates in anticipation of these interchange price hikes that have been delayed. Host Merchant Services is proud to price on a transparent, interchange plus pricing model, so our merchants can rest assured that they will benefit from these delays.

While a respite of another year is preferable to immediate implementation, be aware that these increases are coming. This isn’t particularly big news, since Visa and MasterCard typically make small increases and adjustments to interchange rates twice a year. But these proposed changes, now slated for April 2022, drew major attention from small business merchants, enterprise merchants, the government, and the news media due to the magnitude of the increase which will be much larger than historical adjustments. While your business has more time to prepare, switching to a reputable low-fee provider like Host Merchant Services can more than offset the pain from these upcoming interchange rate increases.

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