New Visa Debit Processing Fees: Bad News For The Public Sector

Last year was a turbulent one for card processing fees, with many expecting 2016 to be relatively quiet. Not anymore. Visa Europe recently announced changes to interchange fees that will come into effect on 1 September 2016.public sector

Visa plans to remove the interchange cap on debit card transactions. Following changes they implemented on 1 March 2015, Visa Europe capped interchange charges at 50p for debit (chip & PIN) or £1 for non-secure/CNP transactions, with this cap taking effect at £245 and £495, respectively. The cap and transaction value is currently higher for business debit payments.

Changes to Visa Debit Processing Fees

However, that is all set to end in a few months, with the cap being removed. Merchants and organisations with Average Transaction Values (ATV) above £245 can expect to be negatively affected by Visa’s announcement.

At present, the interchange charge is 0.2% + 1p and 0.2% + 11p for CNP transactions (with that extra charge going no higher than 50p or £1 for CNP). From 1 September, the fee will be 0.2% per-transaction, with no cap.

For organisations that process payments lower than the £245 ATV cap, there will no noticeable impact. Unfortunately, local government and public sector organisations that often process payments above that amount – for rent and other service charges will soon experience the results of these changes.

Public Sector Impact

Given the high number of Visa Debit transactions in Europe, especially for local government services – since these are usually things customers don’t put on credit cards – we anticipate increases between 100% and 300%, on average.

Assuming, for example, a customer pays £500 rent on a Visa Debit card, the 0.2% transaction charge would cost £1.00. Doesn’t sound like a lot, but that’s a 100% increase in costs before the cap was lifted. Double the amount a customer pays, to £1000 and the transaction charges, will be £2.00, a 300% increase. Now imagine that over hundreds or thousands of transactions every year, for example for the payment of university fees. With the average size of a UK university around 17,000 students, charging up to £9,000 per year, this could result in ATV fees of £450 per student or a staggering £7,650,000 per annum. The impact on revenues is considerable, particularly for cash-strapped councils and public sector agencies.

These changes only reflect new interchange costs. Acquirers then levy their fees on top, resulting in the Merchant Service Charge (MSC), which is when some payment processing providers could either bundle additional charges, or stay cost effective for clients.

Councils should pay close attention to new fee structures announced, especially if payment firms are attempting to squeeze extra profits at times when local government budgets are already stretched thin. Visa making these changes should not cost your organisation more than necessary.

If this affects you, speak to your business advisor or account manager at Secure Trading for further information.­­­