Visa and MasterCard CNP Interchange Increases that Went into Effect in 2021

You pay various types of fees every time you accept credit card payments from your business. An interchange fee is one of these.

Interchange fees do not go directly to your processor. They go back to the bank that issued the credit card to your customer.

Recently, major payment card network Visa made some unanticipated changes to their rates in April. It mainly affected business interchange fees. Business credit card processing fees will go up by as much as 20%.

MasterCard, Discover, and American Express all initiated similar fee updates around the same time.

What’s the Controversy behind the Changes in Interchange Fee?

Visa had already planned to increase these rates in 2020. However, they decided to postpone the increases until April 2021 due to the pandemic.

After some time, Visa announced another delay after Congress pressure and pushed the increases to 2022.

But all of a sudden, Visa decided to proceed with some of the contested fees increases in April 2021. This unexpected and unexpected move was not announced.

So, what’s the impact? How much will this affect your processing fees? It depends.

Companies with a lot of B2B transactions will see an increase in processing fees. It means that your clients are businesses that use specific business Visa cards.

Companies with a high percentage of consumer transactions (B2C) will not be as affected, but they will likely see fee increases this year.

Changes in Visa Interchange Fees

Visa has restructured a section of its interchange fee structure. For specific merchant types (e.g., taxi, education, healthcare, and real estate), new interchange categories have been created, each having their own rates, and eliminated many existing ones. CPS Hotel Card-Not-Present and CPS Rewards 1 are just a few examples of the categories that have been eliminated.

Visa also has a group (a generic one) for interchange categories that can be used to process Card Not Present transactions (CNP) and Card Present (CP). The generic category for CNP is Product 1, while Product 2 is for CP (chip or swiped). These categories will include transactions that don’t fit in the new market segment categories.

Although fee update will continue to be implemented this year, Visa announced that they would delay rate modifications when it comes to Product 2 (CP). It is because Visa plans to defer the implementation of the rate modifications until next year April 2022. As planned, the rate modifications for CNP Product 1 will be carried out next year April 2021.

Visa introduced a new interchange category, Non-Qualified Consumer Credit, in April 2020. It is used for transactions that aren’t “CPS-qualified.” Visa had planned to increase the rate for this category, but was delayed it until next year April 2022.

Visa has updated its rules for declined transactions. Merchants who attempt to decline a transaction 15 times on the same card within 30 days will be charged with associated fees.

Changes in MasterCard Interchange Fees

MasterCard has delayed all interchange fee increases that were scheduled to happen in this calendar year until next year April 2022.

Expect the increases in CNP categories plus a reduction of 8% in a negative interchange that is returned to merchants when they process debit and credit card refunds.

Interchange Fees Changes: The Most Notable Ones

Major changes in Visa and MasterCard’s fee restructuring include significant increases in CNP (or “card not present”) transactions. CNP is a classification that covers any transaction in which the debit or credit card is not used, swiped, tapped, or dipped. These types of transactions are quite common and include:

  • Transactions in e-commerce marketplaces
  • Mobile app-based payments
  • Online transactions
  • Electronic invoicing
  • Automated payments
  • Orders placed by phone

What Can Merchants Do to Reduce Processing Costs?

Avoid Expensive Chargebacks

Even before the recent fee hike, CNP transactions have required a higher interchange charge due to their higher chargeback risk. Merchants can face nightmares with chargebacks. Merchants are responsible for the return of the transaction value.

They also have to pay the original costs of the product or service. Merchants may also be charged an additional fee for chargebacks, ranging from $20 to $100. According to a 2019 LexisNexis study, merchants pay $3.13 per dollar for chargeback fraud.

How to Reduce CNP Transaction Chargebacks?

Although every business will face chargeback disputes eventually, there are some things you can do to help protect your business.

  • Follow best practices to prevent fraud. Every transaction should include security measures like the address verification system (AVS) and the collection of the card verification amount (CVV).
  • Clear and precise descriptions of goods and services are essential to avoid disputes. Also, make sure that billing statements clearly identify the descriptions.
  • Offer dissatisfied customers healthy alternatives. Customers should be able to access customer service quickly and have a clear return policy. Quick exchange or return will cost far less than a dispute overpayment. You’ll also increase customer satisfaction, retention, and loyalty.

Encourage Card Present Transactions

The additional fees can be offset by offering lower-priced card-present transactions. Despite the rise of digitization, brick and mortar are still preferred by consumers. Promoting store traffic is possible by focusing on the things customers love about in-person retail and business experiences.

  • Customers can reserve online and then pick up in-store.
  • Encourage foot traffic to your business by posting local inventory online
  • Offering seamless, convenient in-store exchanges and returns
  • Offer free shipping to your brick-and-mortar store if it acts as a showroom.
  • App users can convert to the app with exclusive in-store items and promotions
  • Organize workshops and events in-store

The Bottom line

After more than a year of notifying card brands about their fee increases, Visa and MasterCard announced that they will be reversing planned changes to their interchange rates, fee structures, and fees on March 16, 2021.

The modifications were announced by Visa and MasterCard on April 1, 2021. The April 2021 modifications were delayed until April 2022 because of opposition from legislators to the increase in order to help economic recovery.

Merchant card fees were set to rise for certain transactions in the April 2021 release. Some fees would have been increased for card-not-present transactions, including online payments. These changes were moved to April 2022.

It is the second delay by the card brands. All changes and fees increases were originally scheduled to take place in April 2020. They delayed most of the fees because of the coronavirus pandemic, which occurred shortly before being implemented.

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