Tag Archives: rate increase

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Interchange Fees Increases Delayed Until April 2022

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.

A Different Kind of +1

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The Official Merchant Services Blog takes a moment to look at a transition in marketing strategies that is extremely relevant to small business : Postage. The United States Postal Service announced this week that it is going to raise its postal rates. Most notable is the cost of the first class stamp is going up one cent from $0.44 to $0.45.

Some other drastic changes are being investigated as well, as cited in that article from Reuters: “The Postal Service has asked Congress for permission to drastically overhaul its business, including cutting Saturday mail delivery and eliminating a massive annual payment to prefund retiree health benefits. The agency also is studying thousands of post offices and processing facilities for possible closure.”

Digital Over Direct Mail

This change is indicative of a shift in how the country does business. And it’s not really all that surprising. The USPS has to react to more than just competition from Federal Express and UPS. Businesses are thriving on the internet. And that makes using more traditional means of marketing –– i.e. print-based marketing –– too little bang for a business owner’s buck.

Which brings us to this interesting article from Multichannel Merchant that suggests that suggests that the postal rate increase is going to cut into the amount of printed materials that businesses mail –– specifically catalogs. Printed direct mail marketing materials, in my experience, have always had a really low impact with customers. Catalogs were usually stronger than other direct mail marketing pieces, for sure. But overall junk mail is called junk mail for the very reason that people ignore it. You send out thousands of direct mail items and are hoping to get dozens of responses, if you’re lucky. So things were already looking bleak for the future of direct mail marketing strategies.

The 2012 postal rate increase only furthers things a long right at the time when internet based marketing strategies are becoming very user friendly for just about everyone.

Social Media Plus One

Social Media can have a much stronger impact with your customers when utilized properly. And there are a lot of easy-to-find resources to help small business owners take advantage of Social Media. Getting tips on how to best use Facebook Ads and Google Ads and Twitter feeds to reach customers organically and generate strong responses to your business and its activities. Host Merchant Services provides some of those resources itself. This very blog is designed with the intent of reaching out to our merchants to help keep them on top of trends and news that help their business thrive. The company also provides an article archive on topics related to the industry so merchants can understand processing better. The company actively keeps its Facebook presence updated. It’s all part of the goal of reaching out to our merchants to help their business run better. The company also provides e-commerce solutions and social media and marketing advice and analysis for its customers. Beyond just the marketing aspects, Host Merchant Services is here to provide its merchants the assistance they need for their e-commerce opportunities.

So take this 2012 postal rate increase as a sign of how marketing for your small business now exists in a very different environment, and you have an opportunity to reach out to customers with the money you don’t give the USPS. You can reconsider reaching out via direct mail and focus on reaching out to your customers through facebook, twitter, your own site and blog, or any combination thereof. At the very least you’ll avoid those higher postal rates, and should be able to drum up just as many points of contact as your mailers were generating.

Print Still Has Its Place

Keep in mind, this isn’t a suggestion to go completely digital. You don’t have to abandon print-based marketing strategies. But you can certainly give serious consideration to adjusting how much you budget for them. If the price increase isn’t worth your money, you can scale back and focus your efforts and resources on something web-based. Use the postal rate increase as a catalyst for boosting your businesses’ e-commerce. Sticking to the most basic plan:

  • You can have your business online, with a website.
  • You can offer your products online, with a catalog.
  • You can process transactions online, through your website and its catalog.
  • You can use a merchant services provider like Host Merchant Services, to handle those transactions.
  • You can then connect to customers and potential customers through social media services like Facebook or Google Ads or Twitter.

From the Multichannel Merchant Article: “Deb Dyer, vice president of marketing for bedding merchant Cuddledown, says the rate increase “won’t keep us from sending catalogs to our house file or prospects, but it will make us look at other digital prospect opportunities and programs.” “

Information Flows Digitally Now

And that’s really what the postal rate increase is most likely going to do for a lot of other merchants. Give them the perfect opportunity to explore the powerful tools they have at their disposal with social media and e-commerce solutions. To put it in perspective, as I was reading the article I link here from Multichannel Merchant, my eyes were drawn to the Facebook “Share” button, Google “Plus One” button and Twitter “Tweet” button that were all conveniently placed on the left-hand side of the article. It’s all right there. One click and you can get yourself involved in a whole new marketing plan for your business.

In short, a lot of people have stopped getting their news from print media. They ignore direct mail sending it to the trash as junk mail. But they’re still consumers and you can reach them with well executed social media marketing strategies. The United States Postal Service is just reminding you that you have this option, albeit indirectly.