Tag Archives: FANF

Changes to Interchange Fees

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Breaking News from The Official Merchant Services Blog: MasterCard and Discover have announced interchange increases and modifications to take effect October 2012. Specific association modifications such as these are beyond the control of payment processors like Host Merchant Services. They come directly from the big card associations themselves. These changes affect all merchant card processors and their customers, meaning these changes in fees and rates travel in a straight line from Visa, MasterCard and Discover to the merchants.

The Meat and Potatoes

MasterCard will be reducing the Consumer Debit rate from 1.64% + $0.16 to 1.60% + $0.15. MasterCard will increase the Small Ticket Debit rate from 1.30 + $0.02 to 1.30 + $0.03.

Discover Card will be enacting several changes to their PSL Public Services interchange fee programs. Rates will increase from 1.50% +$0.10 to 1.55% + $0.10. Discover PSL Card-Not-Present/E-Commerce Premium Plus will increase from 2.30% + $0.10 to 2.35% + $0.10. Discover will also increase Key Enter Premium Plus from 2.10% + $0.10 to 2.15% + $0.10.

Add These Fees to the Pile

These changes come on the heels of a series of changes we reported back in February. Visa’s new Fixed Acquirer Network Fee and Transaction Integrity Fee made all of the headlines back then, but MasterCard also implemented its new annual Acquirer License Fee. This fee took effect in July 2012. MasterCard also implemented a new annual Type III Third Party Processor (TPP) Registration Fee in July 2012.

MasterCard based these fees on a full year of 2011 volume for each merchant, and for 2012 only the fees are 50% of the total fee calculated — since they cover only half of the year. MasterCard passed these fees through on a pro-rata basis and all acquired MasterCard credit and signature debit volume was utilized to determine the annual volume for both programs. PIN debit volume was excluded.

The changes to Discover Card’s PSL Public Services interchange fee programs are also in addition to a series of changes Discover announced back in February. Discover introduced a US Commercial Large Ticket Interchange program, increasing its assessment fee by .005%. Discover also changed existing card present Interchange rates for transactions less than $15 for Express Service merchants (Local Commuter, Bus Lines, Toll & Bridge Fees, Restaurants, Fast Food Restaurants, News/Dealer Stands, Laundries, Dry Cleaners, Quick Copy & Reproductions, Parking Lots/Garages, Car Washes, Motion Picture Theaters and Video Entertainment Rentals) and less than $25 for Taxi/Limo merchants.

Pay Attention to Your Statement

As stated above, these changes are made directly to Interchange rates from the Card Associations.  Unlike Visa’s much ballyhooed FANF, which is a completely new fee and not subject to regulation from the Durbin Amendment, these fees fall under the scope and purview of Interchange, and thus Durbin.

Merchants will begin to see the following text on their August Statements to explain the changing fees:

Visa, MasterCard, Discover Card Services have announced category introductions and modifications to their current interchange structures. These changes may affect your current pricing effective October 2012. Further detail specific to these changes and impacts to your merchant account will be detailed on your September merchant statement. As previously disclosed on your February and March merchant statements, MasterCard introduced the new MC licensing fee. Beginning in August 2012, the new licensing fee of $.005 will be included with the MasterCard NABU billing and appear as “MC assoc NABU/license fee”. Thank you for your continued business.

FANF Reminder [2023 Update]

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Today The Official Merchant Services Blog wants to review the details of VISA’s new Fixed Acquirer Network Fee (FANF). On April 1, 2012, Visa began charging this new fee. But it has taken about this long for it to catch up to merchants and their statements. The process sort of knocked its way down like dominoes falling — The fees went in effect in April, but were based on May’s activity, so didn’t show up until June’s statements, that many merchants are now noticing here in July.

These fees are new, and start to show up on statements where they hadn’t appeared before and they have the appearance of being hidden fees. This development goes against the Host Merchant Services policy of no hidden fees. Which is why we’ve attacked this story so vigorously in our blog, trying to keep our readership up to date on these new card association fees affecting the credit card processing industry.

The HMS Guarantee

Host Merchant Services wants to assure its customers that it sticks by its guarantee. HMS will never increase their fees for their customers. HMS continues to offer the guaranteed lowest rate. And that rate is frozen. Unfortunately, Card Association Fees are new, and are not part of any current pricing model. They are also mandated and initiated by the credit card companies themselves — Visa, MasterCard and Discover. All processors everywhere will be adding them to their pricing structure. So your statement will start showing new fees moving forward. But we here at Host Merchant Services will help explain what they are, where they come from and why they’re just now appearing on your statement. So please feel free to contact us if you have any questions about your statement.

Now About Those Fees

FANF is the most high profile of the new fees. But it’s name is a bit misapplied, as the fee itself is not “fixed” in any sense of the word.  The FANF is a monthly fee that will affect all merchants to a varying degree. For card present businesses like retailers, the amount of the Fixed Acquirer Network Fee will be based on the number of locations a business has. For card not present businesses like e-commerce operations, the FANF will be based on gross Visa processing volume. So the “Fixed” fee’s actual amount varies based on multiple factors. Those variables are:

  • Merchant Category Code (MCC)


    The merchant category code used to classify a business plays a role in the amount of the FANF charged each month. However, the impact of the MCC is very minimal, amounting to a difference of $0.90 – $1.10 for most businesses (less than fifty locations).

  • Acceptance Method


    The main factor in determining the amount of the FANF is whether a business processes the majority of its transactions in a card present or card not present environment.

  • Card Present Businesses

     (Excluding Fast Food Restaurants / MCC 5814)
    The amount of the Fixed Acquirer Network Fee for card present businesses will be based number of locations. Businesses with one location will be charged $2 – $2.90 a month, up to $85 a month for businesses with 4,000 or more locations.

  • Card-Not-Present Businesses

     (As well as Fast Food Restaurants / MCC 5814)
    For card-not-present businesses, the amount of the FANF will be based on gross Visa processing volume. Card-not-present businesses will see a greater impact from the FANF than card-present businesses due to the fee being determined by volume.

For example: card-not-present business processing between $8,000 and $39,999 will be hit with a Fixed Acquirer Network Fee of $15 a month opposed to just $2 for a card present business with similar volume and one location.

Other Fees

Besides FANF, Visa also is implementing a Transaction Integrity Fee and making revisions to its Network Acquirer Processing Fee. Visa’s Transaction Integrity Fee is a new $0.10 fee that will apply to U.S. domestic regulated and non-regulated purchase transactions made with a Visa Debit card or Visa Prepaid card that fail or do not request Custom Payment Service (CPS) qualification. On the other hand, the Network Acquirer Processing Fee on Visa-branded signature debit will be reduced — going from $0.0195 per authorization to $0.0155 per authorization. The fee for credit card authorization will remain $0.0195 per authorization.

Visa Investigation Update

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On May 2 it was revealed by Visa CEO Joe Saunders that the credit card giant was being investigated by the Department of Justice for violation of antitrust laws. One of the key elements of the DoJ’s interest in Visa for antitrust violations is its new fee, the Fixed Acquirer Network Fee (FANF) which went into effect on April 1, 2012. Saunders stated that the investigation began on March 13, prior to the fees taking effect.

Saunders revealed that Visa was being investigated during Visa Inc.’s Fiscal Q2 2012 Earnings Conference Call, which prompted The Official Merchant Services Blog to take its readers through the strange roller coaster ride that was Visa’s beginning of May in THIS BLOG HERE.

The strength of Visa’s earnings in the last quarter was framed immediately by Saunders in the conference call: Credit. As Saunders says, “In the U.S., payment volumes increased 6% for all products. Our star performer for fiscal second quarter was credit. Building on that, we continue to invest in new and expanded long-term credit relationships with our largest U.S. clients to drive growth in our core business.”

The other side of that statement, however, is debit. Where MasterCard took great strides — notably adding the nation’s largest debit card institution Bank of America, which switched from Visa.

Visa claims it was hampered by the Durbin Amendment in terms of making earnings from debit in the last quarter.  As Saunders said in the conference call, “So far, the situation is playing out as we expected, and in line with our updated guidance for fiscal 2012 as well as our guidance for fiscal 2013. During the March quarter, U.S. aggregate debit payment volumes slowed to 2% growth and, as expected, has continued to decline in April. Interlink is bearing the brunt of the regulatory impact.”

Saunders then took a moment to emphasize the individual differences between Visa Debit — the well known Visa check cards that get swiped through terminals around the country — and Interlink, Visa’s PIN-debit product. Saunders noted that Visa’s swipe debit grew, but grew very slowly. And then went into detail about how Interlink was the company’s worst performer in the quarter, “We posted negative payment volume growth in each month of the March quarter. More recently, between the compliance deadline of April 1 and April 28, Interlink payment volume has experienced notable deterioration. Keep in mind, though, that in the March quarter, Interlink contributed less than 10% of U.S. debit revenue and about 2% of Visa Inc.’s overall revenue and was our lowest yielding product in the U.S. market. “

At this point in the call Saunders shifted into a very general discussion of Visa’s “strategies to compete” — essentially their new fees, including FANF, the Transaction Integrity Fee and a revised Network Acquirer Processing Fee. That led Saunders to discuss the Department of Justice investigation: “On March 13, prior to the April 1 implementation date, the U.S. Department of Justice Antitrust Division issued a civil investigative demand requesting additional information about PIN-authenticated Visa Debit and elements of our new debit strategies, including the fixed acquirer fee. In March, we met with the department twice and provided materials in response to the CID. We are confident our actions are appropriate and that our response to the DOJ supports that.”

More Commentary from Visa

During the question and answer period of the conference call, Saunders stepped up to defend Visa’s new fees. Saunders says that the fees are part of “the total structure we’ve put to deal with the Durbin regulation. We are not making money per se off of that fee. The combination of discounts and incentives that we have put together, I think, actually relate in a modest loss in the amount of $100 million a year. So we aren’t doing this with the intent of raising prices.”

Then another question comes up in the call asking about the outlook the company has for recovering from the losses in Debit due to Durbin. Saunders very vocally defends the company’s fees and strategies: “Let me just follow up on that and make perfectly clear one thing, and that is that we are never going to regain all of the market share that we had in the debit card business. Nothing that we say or none of our strategies suggest that that will happen or could happen. And nothing that we have done or thought about or said anticipates that it will happen. The environment has changed by regulation. We are operating in a different world, and we are going to live forever with less share than we once had.”

The TLDR Version from Visa

So essentially Visa’s CEO has revealed the company is being investigated by the DoJ for antitrust violations because its new fees could circumvent the point of the Durbin Amendment’s reform. But Saunders states the company is cooperating with the government probe, and stoutly defends the fees as not circumventing Durbin. Saunders says the fees don’t recoup the losses that the company will incur from the hard cap, and that the company is still taking a downturn in the debit sector even with the fees in effect. He admits that these fees are part of their strategy to deal with the legislation but feels that the company isn’t violating antitrust laws.

The transcript of the entire conference call can be read HERE at Seeking Alpha. Many thanks to them for providing it for use to bloggers and media outlets.

Visa’s Ups and Downs

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The Official Merchant Services Blog takes a look at Visa’s wild ride between May 2 and May 3. In the midst of a very active first quarter of 2012, Visa’s earnings report came in. The San Francisco based credit card giant then took a ride on a roller coaster in the span of two days after the report was released.

The Up Vote

The company had good news to report on May 2: Visa said Wednesday that its profit for the first three months of the year was up 30 percent from the year before, primarily because credit card use rose in the United States and overseas. Bloomberg broke down some key statistics from the report in their story here: “The company said Americans rang up 12 percent more on their charge cards for the quarter. Debit card use grew by only 4 percent to $284 million, however, the slowest growth in a year.”

So the boost in Visa profits is tied to an increase in the use of credit cards in the first three months of the year. But it appears the Durbin Amendment, financial reform legislation designed to address problems with swipe debit fees, has slowed down debit card use. As the Bloomberg article reports, the Durbin Amendment appears to be having an impact on profits: “Banks have eliminated some debit card rewards programs since October, when the government limited the fees banks can charge stores for card transactions.”

The profit breakdown for the quarter paints a very rosy picture. Visa’s net income was $1.3 billion, or $1.60 per share. Wall Street was expecting $1.51. Revenue rose 15 percent to $2.6 billion. Wall Street was expecting $2.48 billion.

The Down Turn

And then the roller coaster ride took a dip. Bloomberg reported the next day, May 3, that Visa stock took a decline based on the details of a U.S. Antitrust Probe into Visa’s Debit Strategy. The article states: “Visa Inc., the payments network that has lost market share amid new debit-card rules, slid as much as 4.5 percent in extended trading after disclosing a U.S. antitrust probe into the firm’s pricing and strategy.”

Visa adjusted the network’s fee structure to defend its leading market share after the Durbin Amendment took effect in October. On March 13, the U.S. Justice Department’s antitrust division issued a civil investigative demand asking for information about Visa’s debit strategy. Bloomberg quotes Visa Chief Executive Officer Joseph W. Saunders as saying in a conference call: “We are confident our actions are appropriate and that our response to the DOJ supports that.”

According to Saunders Visa has received four other requests for information from the Justice Department since 2007, and all have been resolved with Visa’s full cooperation.

The Durbin Factor

The Visa news comes after recent announcement from MasterCard, which stated that their own first-quarter profit increased 21 percent to $682 million. Like Visa, MasterCard’s profits also beat Wall Street estimates.

Speculation suggests that the hard cap on Debit Card Swipe fees imposed by the Durbin Amendment from October 2011 may have helped MasterCard take some market share away from Visa. MasterCard has been winning deals to handle processing of debit transactions according to the company’s Chief Financial Officer Martina Hund-Mejean.

Bloomberg quotes Hund Mejean as saying in a conference call to analysts: “In every quarter we’re going after business very surgically and opportunistically. You can see those results in our numbers.”

And according to Tien-tsin Huang, a JP Morgan Chase & Co. analyst in a May 1 research note, Bank of America Corp. — the biggest debit-card issuer and catalyst of post-Durbin media frenzy — switched to MasterCard.

Visa’s Fees Bite Back

Visa changed its debit-card fees in April, creating new fees like the Fixed Acquirer Network Fee (FANF) in an attempt to create incentives for merchants to route more transactions on the company’s network. The fees, which had been variable were broken into various components. To read more about those fees, you can CLICK HERE to see Host Merchant Services‘ own coverage of the April fees. The Bloomberg article suggests that Bank of America switched to MasterCard in reaction to the new Visa fees and MasterCard’s own surgical strike against Visa’s market share.

Visa, MasterCard Add New Fees

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The Official Merchant Services Blog has just learned that Visa and MasterCard are planning to add new processing fees in the coming months — fees specifically targeted toward Debit Card Swipe transactions. These new fees, which we are consolidating and dubbing as “Card Association Fees” are going to complicate the pricing process for Merchant Services Providers in 2012.

Tricky Fees

Visa, MasterCard and Discover are the main players in the “card associations” and they are the driving force behind interchange and interchange rates. These associations periodically review and modify their interchange rate structures and billing strategies. What this means is that normally each year the big credit card companies get together and increase interchange rates. But after the Durbin Amendment went into effect in 2011, the credit card associations are taking pause and tweaking their own strategy. So effective April 2012 there are new Card Association Fees being implemented and these fees are not interchange fees. These are brand new processing fees created by the associations.

Visa’s New Fees

Visa has announced that beginning April 1, 2012, it will be introducing a trio of new fees:

  • A Transaction Integrity Fee
  • Revisions to its Network Acquirer Processing Fee
  • A Fixed Acquirer Network Fee (FANF)

Transaction Integrity Fee: Visa’s Transaction Integrity Fee is a new $0.10 fee that will apply to U.S. domestic regulated and non-regulated purchase transactions made with a Visa Debit card or Visa Prepaid card that fail or do not request Custom Payment Service (CPS) qualification. The CPS rates are Visa’s best rates and apply to both regulated and non-regulated transactions. This new fee can be viewed as a definite response from Visa to the Durbin Amendment’s interchange rate cap and finance reform/regulatory changes.  This is part of the ninja-style set of moves The Official Merchant Services Blog has cited would be the reaction to the Durbin Amendment.

Network Acquirer Processing Fee: The Network Acquirer Processing Fee on Visa-branded signature debit will be reduced — going from $0.0195 per authorization to $0.0155 per authorization. The fee for credit card authorization will remain $0.0195 per authorization.

Fixed Acquirer Network Fee: FANF will apply to the acceptance of all Visa-branded products and is based on both the size and the number of merchant locations. The FANF fee will be based on volume reported in July 2012. Visa will require U.S. acquirers to provide new merchant location reporting for the tracking of this fee. The new reporting requirements will include a monthly breakdown of acquired merchants, number of merchant locations, and merchant sales volume by merchant Taxpayer ID. For Card Present merchants, with the exception of Fast Food Restaurants, a merchant Taxpayer ID with physical locations will be assessed FANF on a per-location rate basis. For example, Card Present Merchants with one to three locations will see a pass through per location per month fee of $2. Price per location per month will increase according to the number of locations – upwards of $65 month for merchants exceeding 4000 locations. Card Present High Volume MCC Merchants with one to three locations will see a pass through per location per month fee of $2.90. Price per location per month will increase according to location — upwards of $85 month for merchants exceeding 4000 locations. Customer Not Present, merchant aggregators and merchants primarily operating as Fast Food Restaurants (MCC 5814) will be assessed based on gross merchant sales volume originating from any Visa-branded card. Merchants that fall into this category with monthly gross sales volume ranging from less than $50 a month on the low end will see a $2 a month fee- to merchants with gross sales exceeding $400 million at a $40,000 a month fee. There are some 18 tiers, with a merchant falling into a volume tier of $8,000 to $39,999 a month seeing a new $15 per month FANF fee.

Visa will also effectively waive the FANF for eligible Charitable and Social Service Organizations (MCC 8398). The FANF waiver for Charitable and Social Service Organizations will be provided through a quarterly rebate process that Visa has indicated will be defined at a later date.

Continue Reading – Visa, MasterCard Add New Fees, Part 2