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Winners and Losers of Major Card Fee Increases from Visa and Mastercard 2021

At a glance:

Visa and Mastercard quietly made significant increases to card swipe rates in April, 2021. These changes are projected to cost business owners a staggering $1.17 billion per year. We break down the winners and losers of the new changes and the best ways to offset your increasing processing costs.

Background and controversy surrounding the changes

An Initial rollout in 2020

In 2020, Visa and Mastercard announced plans to restructure interchange fees for the first time in over a decade. All told, the planned changes would cost merchants over a billion dollars in additional processing costs. At the time, the announced rate increases were already controversial.

Delayed as a result of COVID-19

With the economic upheaval caused by the pandemic, Visa and Mastercard delayed the scheduled changes by a year to April 2021.

Pressure from trade associations and lawmakers

In March 2021, lawmakers and trade associations pressured the payment networks to reconsider the impending fee increases. Senator Durbin (D-IL) and Congressman Welch (D-VT) issued a joint letter to the card networks. Their letter urged the companies to call off the fee increases. “Our nation is still reeling from the ongoing pandemic.” The letter also criticizes the disproportionate impact of the fee increases on online transactions, straining an essential lifeline for businesses during the pandemic.

Visa and Mastercard agree to delay changes until April 2022

On March 16, 2021, both Visa and Mastercard announced that they would once more delay the rate changes.

Mastercard: “Mindful that some merchants are still facing unprecedented circumstances, we are delaying our previously announced interchange adjustments,”
Visa: “Visa is committed to maintaining stability in our payments system and will not make any future rate changes in the U.S. for another year while the economy recovers.”

An unannounced rollout of changes despite the promised delay

Despite their earlier statements, both companies proceeded with the majority of the planned changes in April. These changes include the most controversial and costly fee increases. In the next section, we will explore the types of transactions affected and the changes to your processing costs.

A closer look at the changes and who is affected

The most significant changes

The largest changes found in the Visa and Mastercard’s recent fee restructuring involve significant increases in CNP or "card not present" transactions. This means that any transaction where the physical credit or debit card is not dipped, tapped, or swiped will fall under the CNP classification. The types of affected transactions are surprisingly common.

Examples of affected transactions

  • Online e-commerce transactions

  • Online website transactions

  • Mobile app-based payments

  • Automatically scheduled payments

  • Electronic invoicing

  • Orders taken over the phone or otherwise manually entered

Will you be affected?

The ubiquity of these forms of transactions means that nearly every business will be affected by the fee increases. If you're unsure if any of your transactions will be affected, you can ask your payment processor.

How much will the fee increase cost you?

A closer look at the CNP interchange rate increase

For the few equipped to interpret the complexities of interchange rates, here are the official rates as of April 16, 2021, for Visa and Mastercard. For the rest of us, an example may be more helpful.

For a traditional Visa card, the fee on a $100 transaction will climb to $1.99 from $1.90. For premium Visa cards, the fee will rise to $2.60 from $2.50

In the example above, the increases represent a 4.7% and 4% increase respectively. Though the fee increases may sound unassuming at first glance, they add up. After all, interchange accounts for roughly 70 to 85 percent of a merchant’s total processing expense.

A significant annual increase for merchants

Analysts at CMSPI have estimated that Visa’s cost structure changes will result in an $842 million annual increase in merchants' processing fees. Meanwhile, the changes implemented by Mastercard are estimated to cost merchants an additional $329 million annually. All told, these changes will cost merchants over $1.17 billion each year.

A troubling trend

The changes also continue a trend of increasing complexity in processing interchange fee structures. This is problematic for merchants who must navigate these fee structures to optimize their interchange rates and minimize their processing costs. Universal Processing optimizes these interchange categories as part of our onboarding process so our clients can rest assured that they have the best possible rate on their processing fees. If you’re unsure about your processing rates, you can submit a copy of your statement for a free cost-savings analysis by reaching out to or your payment processing provider.

Beneficiaries of the restructuring

Not all businesses will be affected equally by the changes. Businesses with specializations in health care, education, and real estate may see a reduction in processing fees - a result of Visa’s push to boost card acceptance in these industries.

Quick service restaurants with small average ticket values

For some fee programs, Visa is removing the per-item charge for interchange fees, opting instead to focus on the ad valorem (%) fee.

The new structure follows the format 1.90% (min. $0.04) instead of the traditional 2.10% + $0.10 pricing format.
New interchange structure for Restaurant 1 and Restaurant 2 categories

With the change, retailers and restaurants (particularly quick-service restaurants) with small ticket sizes will see a reduction in processing costs. Conversely, full-service restaurants, with higher average ticket values will be negatively impacted.

How you can reduce your processing costs

Avoid expensive chargebacks

Even before the recent fee increase, CNP transactions have demanded a higher interchange fee because of their higher associated chargeback risk. Chargebacks can be a nightmare for merchants. Not only are merchants on the hook for returning the transaction value in question, but they must also shoulder the original costs associated with the product or service in question. In addition, chargebacks will cost merchants an additional fee ranging from $20 - $100. A 2019 LexisNexis research study found merchants incur $3.13 in costs for every dollar of chargeback fraud.

How to reduce chargebacks in CNP transactions

Though every business will inevitably face some chargeback disputes, you can help insulate your business by taking a few precautionary measures.

  • Avoid fraud by following best practices for safety and identity verification. Security measures such as the address verification system (AVS) and collection of the card verification value (CVV) should be used as part of every transaction.

  • To prevent erroneous disputes, provide clear and accurate descriptions of your goods and services and ensure descriptions used on billing statements are easily recognizable.

  • Offer dissatisfied customers healthy alternatives. Make sure that customers can easily access responsive customer service and a comprehensive return policy. Facilitating a quick return or exchange will cost you far less than a payment dispute. Plus, you'll increase customer satisfaction and retention.

Encourage card present transactions

You can also reduce offset the additional fees by promoting less expensive card-present transactions. Despite digitization trends, consumers still prefer brick and mortar. Promote in store traffic by leaning into the factors that customers love about the in-person retail or business experience.

  • Allow customers to reserve online and pick up and pay in-store.

  • Provide local inventory availability online to encourage foot traffic to your business

  • Offer seamless and convenient in-store returns and exchanges

  • If your brick and mortar business acts as a showroom, offer free shipping from the store.

  • Convert app users with in-store exclusive items and promotions.

  • Host special in-store events and workshops.


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