Increasing fees for existing users of a product or service is never an easy thing. While there is rarely a perfect time to raise prices, there certainly are some times that are better than others. In the midst of some of the most intense dialogs that have taken place over credit card interchange, the fees that merchants pay the issuing banks to accept credit cards, Visa and MasterCard have announced one of the largest fee increases in years. The timing of their fee increase could possibly be written up in a case study as an example of what not to do.
Starting on July 1, 2009, Visa is introducing a U.S. Acquirer Processing Fee (APF). The fee will be $0.0195 on all Visa branded authorizations acquired in the U.S. regardless of where the issuer/cardholder is located. On April 18, 2009, MasterCard implemented a new Network Access and Brand Usage (NABU). Fee of $0.0185 for all U.S. based sales and credit/refund transactions.
For merchants that have a larger average ticket of $150, the Visa fee increase is pretty insignificant and amounts to 1 basis point (100 basis points = 1%). For a lower average ticket of $15, it amounts to a more significant 13 basis point increase.
The timing of the fee increase, while bad, may have been strategic in the wake of all the congressional activity surrounding the credit card reform that passed last month. I'm speculating, but I wonder if both Visa and MasterCard, facing some legislative risk, were trying to re-anchor the pricing discussion at a higher starting point in case congressional mood were to turn in favor of the groups lobbying for action. Alternatively, the fee increase could have had nothing to do with this 'chatter' and was fueled by that fact that both are now a public companies and need to take care of their shareholders and stock prices.
I spoke to a Visa representative recently at an industry conference and asked about the fee. I was told that they were increasing the price to more fairly align value created and price. Even if that is the case, and it's quantitatively supported, they need to do a better job selling these measurements with everyone actively engaged in the interchange pricing debate.