The State of Credit Card Fees 2022

Mar 1, 2022 by Kelsey Banerjee

Back in 2020, Visa announced its biggest interchange rate update in 10 years. But due to the pandemic, these sweeping changes, which would include fee restructuring, were postponed due to COVID. When the time came to implement the new interchange fee in 2021, it was delayed again - and again, the pandemic was the culprit. This credit card giant isn't alone. Mastercard also delayed its regular interchange fee update until 2021.

Now, finally, by April 2022, Visa should be implementing its changes.

For merchants feeling the cash crunch, these updates are crucial for payment planning. Depending on the business model, an owner or AR department may choose to switch their payment acceptance policy. A steep increase can significantly reduce revenue since the interchange fee makes up a portion of the credit card processing fee. This is especially true since 70%-90% of this fee makes up the bulk of the processing fee for merchants.

The next interchange rate update

Unlike Visa, Mastercard has published its list of rates. They have included the rates for credit card payment, as well as those for a prepaid or debit card transaction.

But we do know some general information about Visa's planned modifications.

Visa's change to the interchange fee would primarily affect card-not-present transactions. As a result, eCommerce businesses or any organization taking online credit card payments would be most affected.

What will be changed? There's still no extensive documentation available to merchants. But we do know that for every $100 transaction, the rate will increase by about 10 cents. So, for example, if the interchange rate was $1.90 for a regular card processing a $100 transaction, after the update, it will be $1.99.

However, the fee is likely to drop in card-present transactions, such as at a brick-and-mortar retail store.

So, why are fees for online payments with credit cards going up while in-store fees are going down? This is because the interchange fee is meant to offset the risk the issuing bank takes by processing the payment. The rapid increase in payments fraud further drives up the risk for the credit card issuer. Thus, the interchange rate also goes up.

What this means for your business

For merchants, the new credit card processing fee has several implications. Some of the concerns you and other merchants may be facing are:

  • Whether it is possible to raise prices further, despite customers already being squeezed due to inflation?
  • Whether it's preferable to offer additional payment methods outside of credit card payments?
  • Whether it's possible to shift the credit card processing fee to the customer?

While ten cents may not seem like a significant figure, it's possible that this increase may be larger for bigger purchases. Credit card processing fees, especially for B2B businesses, can add up quickly.

It's also important to note that these interchange updates normally happen twice a year, in April and October. If you rely primarily on card payments, card processing fees will continue to cut into your bottom line.

7 ways to save money on credit card processing fees

For most businesses, turning away from credit card payments completely isn't viable. But there are ways to reduce their interchange rate for every credit and debit card transaction. Here are our top 7 strategies every business can use:

  1. Turn your processing fee into a convenience fee. One of the most common ways to deal with credit card fees is to pass them onto the customer in the form of a convenience fee. And this makes sense. The ability to pay with a credit card is convenient to the customer, but it's a risk for the merchant. Not only does this strategy cover your credit card processing fees, but it can encourage customers to use other payment methods.
  2. Negotiate with your payment processor. Some payment processors and banks may offer you reduced wholesale prices on transactions.
  3. Incentivize other payment methods. Another way to get around paying hefty credit card fees is to offer a "Zero-Fee" option for ACH or bank-to-bank transfers. When combined with a convenience fee, this strategy is particularly effective.
  4. Leverage an address verification service (AVS). Since the interchange rate is meant to counteract potential fraud, investing in a verification service that validates every debit card or credit card payment can lower your processing fees.
  5. Settle payments faster. Believe it or not, settling a credit card payment within 24 hours can actually decrease your interchange rate, too.
  6. Use a flat-rate payments service. There are many ways a payment processor will bill a business, but flat-rate plans tend to be more straightforward, easy to budget and may reduce costs. This is because the rate stays the same, no matter how many transactions you process.
  7. Ask users to provide security information. Similar to using an AVS, the more secure you can make the transaction, the lower your interchange rate. Simply asking customers to enter a security code or provide their billing ZIP code is enough to make a dent in the processing cost.

Zero-Fee Payment Processing

It's hard to find a payment processor that does a little bit of everything. Convenience fee? Zero-Fee? Accepts ACH, bank-to-bank transfer, e-check, and everything in-between? What about a convenient payment portal and ultra-secure vault?

We don't mean to brag, but easy, fast, and secure payments are kind of our thing. Especially for B2B transactions.

The fact is, every business should have a way to offset costly processing fees while also providing a seamless and safe experience for their customers. To learn more about how Paystand can help you reduce interchange fees and transform your payments process, schedule a demo with us today.