Interchange Rates are Changing: Now is the Time to Consider a Convenience Fee Solution

As a function of Visa’s forthcoming changes, card-not-present interchange rates will be increased, meaning that transactions made online or over the phone will incur greater fees. For those in the Accounts Receivable Management (ARM) sector who take payments online or over the phone, these upcoming fee increases mean now is the best time to implement a convenience fee model, in order to avoid increased costs to your business. As the only fully-compliant solution in the ARM industry, Payscout’s convenience fee model can help businesses offset these fees while ensuring full compliance. To learn more about how to better prepare your business to take advantage of these upcoming changes, contact sales@payscout.com.

Debit and Credit cards

July 2020 Interchange Updates (Previously April 2020)

Visa has recently announced upcoming changes to their U.S. interchange rates, aimed at better reflecting the value and usage of its products. These changes were previously scheduled for April 2020, but have since been modified to come into effect in July 2020 as a result of the COVID-19 pandemic.

Interchange fees are the fees that are charged whenever a debit or credit card transaction is made, and typics made, wo components: a percentage fee based on the transaction volume (e.g. 1.65%), as well as a flat fee per transaction (e.g. $0.30). These rates vary depending on multiple factors such as the payment method, transaction amount, and business sector. 

Below are the upcoming changes that will come into effect in July 2020.

Downgrade Interchange

Electronic downgrade interchange rates for transactions that fail to qualify for Custom Payment Service (CPS) rates will be eliminated. CPS is a Visa program with requirements for credit and debit transactions, which if met, can result in interchange rates being lowered to the best available rates in the system. 

Currently, transactions which do not qualify for CPS rates are downgraded to Electronic or Standard interchange rates. Under the new changes, the interchange name for downgrade transactions will be renamed to “Non-Qualified”. The interchange rate for Non-Qualified transactions will be increased to 3.15% + $0.10 for consumer credit transactions and 3.15% + $0.20 for small business credit transactions.

Consumer Credit Merchant Segment Incentive Interchange

The Business-to-Business interchange rate on Small Business products will be eliminated as of July 2020. Several other changes will be implemented in October 2020 (to be confirmed), which are detailed later on in this article.

Supermarket Credit

A new Performance Threshold (“Supermarket Performance Threshold 0”) will be added to the top of the existing tiered Supermarket Credit criteria. This new threshold will have a transaction minimum of 350 million transactions, and a volume minimum of $17.5 billion. Additionally, the Supermarket Credit performance thresholds will be extended to Visa Signature and Signature Preferred transactions, and the existing performance threshold interchange rates will be modified. 

Commercial Level 2 Fuel Interchange

Commercial Level 2 Fuel Interchange rates will be increased from 2.05% + $0.10 to 2.20% + $0.10. This interchange rate will apply to all purchasing and corporate cards, and the following Merchant Category Codes (MCC’s): 

  • 4468 (Marinas, Marine Service and Supplies)
  • 5499 (Miscellaneous Food Stores- Convenience Stores and Specialty Markets)
  • 5541 (Service Stations (with or without Ancillary Services)
  • 5542 (Automated Fuel Dispensers)
  • 5983 (Fuel Dealers- Fuel Oil, Wood, Coal and Liquefied Petroleum)

Small Business Tier 5 Spend Qualification

A new spend qualification tier (“Tier 5”) for Small Business Products will be introduced. The new Tier 5 interchange rates will require an annual spending of $250,000 or greater. 

Small Business Interchange

Interchange rates and category names from the Small Business Platform will be modified. The interchange category for Travel Service MCCs will be renamed from Business Electronic to “Business Travel”. Additionally, card-not-present programs will be renamed as “Product 1”, and card present programs will be renamed as “Product 2”. For example, the Business Card-Not-Present program will be renamed as Business Product 1, and Business Retail will be renamed as Business Product 2.

October 2020 Interchange Changes

Furthermore, Visa has an additional series of upcoming changes coming into effect on 17 October 2020. Below are the key changes that will be taking place. 

Consumer Credit Merchant Segment Incentive 

Effective 17 October 2020, the Retail 2 Program will be eliminated, and new interchange rates for Insurance, Services, Education, Healthcare, Real Estate, and Advertising will be introduced. In addition, the Services interchange rates will feature a minimum ticket size qualification, meaning that the incentive interchange rate is only available for transactions of $100 or greater. The ticket size qualification for Education, Healthcare, and Real Estate transactions will be for transactions of $500 or greater

The new ticket size qualifications that are being introduced are designed to benefit higher ticket transactions from these sectors. As a provider specialized in the Education, Healthcare, and Retail sectors, Payscout can help you take advantage of these upcoming interchange rate changes. 

Consumer CNP Interchange

The interchange rate name for CPS-qualified card-not-present transactions will also be modified to “Product 1”. Additionally, card-not-present interchange rates will be increased, meaning that transactions made online or over the phone will incur greater fees. 

For those in the Accounts Receivable Management (ARM) sector who take payments online or over the phone, these upcoming fee increases mean that now is the best time to implement a convenience fee model, in order to avoid increased costs to your business. As the only fully-compliant solution in the ARM industry, Payscout’s convenience fee model can help businesses offset these fees while ensuring full compliance.

To learn more about how to better prepare your business to take advantage of these upcoming changes, contact sales@payscout.com.

Visa Rules on Convenience Fees

In the payments ecosystem, Convenience Fee models are rising in popularity, but many merchants and agencies are unaware that the card-brands have issued explicit rules on how these fees may be applied.

If you are currently deploying a Convenience Fee-based payment model, you should take care to review these card-brand rules.

    1. Charged for a bona fide convenience in the form of an alternative payment channel outside the Merchant’s customary payment channels and not charged solely for the acceptance of a Card
    2. Added only to a Transaction completed in a Card-Absent Environment
    3. Not charged if the Merchant operates exclusively in a Card-Absent Environment
    4. Charged only by the Merchant that provides goods or services to the Cardholder
    5. Applicable to all forms of payment accepted in the payment channel
    6. Disclosed clearly to the Cardholder
      – As a charge for the alternative payment channel convenience
      – Before the completion of the Transaction. The Cardholder must be given the opportunity to cancel.
    7. A flat or fixed amount, regardless of the value of the payment due 
    8. Included as part of the total amount of the Transaction and not collected separately
    9. Not charged in addition to a surcharge
    10. Not charged on a Recurring Transaction or an Installment Transaction.

The eighth rule in this list is where serious risks of non-compliance frequently arise. According to Visa’s rules, Convenience Fees have to appear (and be processed and authorized) as a single transaction by the merchant of record. Solutions which process convenience fees as two separate transactions are therefore non-compliant, and can compromise your merchant account.

If you’re currently deploying or considering a convenience fee model, be sure to ask your payment provider whether they process convenience fees as a single transaction or a separate transaction. If the convenience fee solution involves running the convenience fee as a separate transaction, you may be at risk of losing your merchant processing account and compromising your ability to accept payments altogether.

Many popular solutions are not fully compliant with card brand rules, which is why it is crucial to have a thorough understanding of these requirements to ensure that your provider’s solution is compliant. Fully compliant programs do exist that can minimize your business risk while reducing your payment acceptance costs.

Click here or call 888-211-4470 to learn more.

The Convenience Fee Conundrum

Working with laptop in office
Convenience Fees are an attractive solution for boosting your bottom line, but if you’re not careful, they can cost you your ability to accept payments altogether.

In the accounts receivable management (ARM) world, convenience-fee payment models are growing in popularity, and for good reason: When applied correctly, they have the ability to reduce a merchant’s payment processing costs significantly by charging the consumer or debtor a flat fee for the convenience of accepting payments online or over the phone (depending on the consumer’s/debtor’s State of residence).

What many collection agencies may not realize is that convenience-fee solutions are the subject of serious scrutiny from compliance experts (and enforcers), and if they’re not properly applied, they can cost the merchant their ability to accept payments altogether. Having their merchant accounts closed, being blacklisted, and being cut off from their banks are just a few of the potential hazards for a merchant who deploys this model without doing their due diligence.

Convenience Fees and Compliance

There are three layers of compliance that a merchant must consider if they are using a convenience-fee model:

FDCPA Guidelines

FDCPA guidelines prohibit “the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law,” 15 U.S.C. 1692f(1). However, a third-party vendor, in most cases a payment processor, can charge the fee because that vendor is not subject to FDCPA, which only applies to third-party debt collectors.

State Requirements

The second leg of compliance is the state requirements or restrictions. Abiding by these rules is not as simple as just keeping a list of restricted states, as case law is constantly changing. Due to the dynamic nature of state requirements, it is crucial to monitor these changes and work with partners who stay up to date on statutes and can handle the differences in their technology.

Most of the payment processors who offer convenience fees are doing so in compliance with FDCPA and state requirements. From the card-brand perspective, however, there is a set of very specific rules pertaining to added charges such as convenience fees, Visa’s being the most restrictive, and many popular solutions are not in compliance with these rules.

Visa Card-Brand Rules

Visa defines three main types of fees: Surcharges, Convenience Fees, and Service Fees, each with their own set of restrictions. In the US, a Merchant that charges a Convenience Fee must ensure that the fee is assessed as follows:

1)  Charged for a bona fide convenience in the form of an alternative payment channel outside the Merchant’s customary payment channels and not charged solely for the acceptance of a Card

2)  Added only to a Transaction completed in a Card-Absent Environment

3)  Not charged if the Merchant operates exclusively in a Card-Absent Environment

4)  Charged only by the Merchant that provides goods or services to the Cardholder

5)  Applicable to all forms of payment accepted in the payment channel

6)  Disclosed clearly to the Cardholder:

– As a charge for the alternative payment channel convenience

– Before the completion of the Transaction the Cardholder must be given the opportunity to cancel.

7)  A flat or fixed amount, regardless of the value of the payment due

8)  Included as part of the total amount of the Transaction and not collected separately

9)  Not charged in addition to a surcharge

10) Not charged on a Recurring Transaction or an Installment Transaction

It’s the fourth and eighth items in this list that can, together, compromise a merchant account quickly: Convenience fees have to appear (and be processed and authorized) as a single transaction by the merchant of record.

As you are reading this, if you’re currently deploying or considering a convenience fee model that involves running the fee as a separate transaction, you may be at risk of losing your merchant processing account.

Fully compliant programs do exist that can minimize your business risk while reducing your payment acceptance costs.

Click here to learn more.