Visa to Provide Clarity on Network Participation Fees for Acquirers

by Mercator Advisory Group 0

During its quarterly earnings call last Friday, Visa Inc hinted that clarity on the network participation fees announced by the company in July was just around the corner. Visa Chairman Joseph Saunders indicated that plans for the fee would be revealed “within the week.” Acquirers will be subject to the network participation fee for debit transactions, an expected mandate that the company has said is its response to new regulations from the Federal Reserve pursuant to the Durbin Amendment, and that some analysts have characterized as a Durbin workaround.

ISO & Agent has the following story:

Visa has stated since July its intention to establish a network-participation fee and lower its variable fee, which is based on transaction volume. Under the variable fee, acquirers and merchants pay a sum for each card transaction that fluctuates depending on the number of transactions processed.

Visa views the network fee as a way to avoid competition over variable fees in light of requirements under the Durbin amendment to the Dodd-Frank law requiring issuers to support two unaffiliated networks for routing their debit transactions. The new Federal Reserve Board rule takes effect April 1.

Visa prefers not to compete on price with its variable rate for fear it could lose some routing business, Gil Luria, analyst with Los Angeles-based Wedbush Securities, tells ISO&Agent Weekly.

“If they establish a network-participation fee, and lower their variable fee, they will always have a lower variable than the competition,” Luria says, reasoning that no other network has come forward about a network participation fee and would not be in a position to lower variable fees to match Visa.

Merchant acquirers will watch with interest to see if the new participation fee and the lower variable fees ultimately add up to savings for the merchants, Luria says. “The conversation with merchants takes on a very different feel, depending on if this is going to represent an overall increase,” he contends.

Visa originally said in July the network-participation fee would not represent an overall increase, Luria notes. But Visa executives seemed far less eager to make the same declaration during last week’s earnings call.

A Visa spokesperson said the company would not comment about the network-participation fee and instead referred to comments Saunders made during the earnings call.

During that discussion, Saunders suggested the new fixed fee will “offer merchants greater incentive to route transactions over our network in an opportunity to lower their per-unit transactions costs.”

In addition, Saunders mentioned the new fee “is not a price increase, as we speak today, as it relates to the PIN capability on the signature card.”

Luria and other analysts found Saunders’ statement too vague to help determine how the new fee setup, which applies to all Visa credit and debit cards, will affect merchants’ bottom lines.

“We are only being told what we need to know at this point because the merchant acquirers will be the first to learn how it will be implemented,” Luria says.

Some industry disruption seems certain because merchants with cash-flow problems may not want to pay a network-participation fee up front, Luria notes. “Those merchants will shoot the messenger in some cases and look to change merchant acquirers,” he says.

MasterCard Worldwide has not announced any new fee strategies, suggesting it is taking a “wait-and-see” approach to determine how merchants react to Visa’s strategy, Luria says. MasterCard representatives were not available for comment.

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