The Credit Card Fee Debate Heats Up for Consumers, But What About Merchants?
The Consumer Financial Protection Bureau (CFPB) recently issued a new ruling limiting the fees credit card issuers can charge consumers. The announcement, which has faced numerous legal challenges, is expected to go into effect on May 14, 2024. This is welcome news for consumers who stand to save up to $3.5bn, but what about businesses? The CFPB’s own assessment stated that the change could “lead to evolving industry dynamics with uncertain benefits and costs”.
Well, merchants reportedly paid $126 billion in credit card fees in 2022, according to a Nilson Report analyzing U.S. merchant processing fees. That’s an increase of 20% from the previous year and more than double from 2013. The Motley Fool found that merchant processing fees equal approximately 1.3% to 3.5% of each credit card transaction.
Average Credit Card Processing Fees
Source: Helcim (2023)
So, while the new CFPB rules are a potential move in the right direction for consumers, where does that leave companies? And will banks push for higher interchange fees to offset the loss in revenue from reduced consumer fees?
At Bankhawk, we save companies millions on credit card fees each year. Here’s some insight into how we do this.
Card Fee Optimization
As a leading payments advisory service, Bankhawk has helped many clients reduce their credit card fees through their deep expertise of card networks, the various components of swipe fees and benchmarking capability.
While the industry works hard to remove transparency, Bankhawk is able to identify opportunities and strategies to reduce costs in areas which are often missed by analyzing cost data at a transaction-level.
Debit Routing Opportunities
Moreover, not enough merchants make use of, never mind maximize, the benefits available from least-cost debit routing. The graph below shows average interchange fees across available networks varies from ~0.4% to 1.4% - a whopping 1% difference. It’s even greater when you include network/switch fees and incentive deals possible with some networks.
Average Debit Interchange Fees (2022)
Source: Federal Reserve. Reg II Exempt Transactions
If you thought your processor had you covered, think again. They do their own deals with the networks to route to the one which benefits their bottom-line and not yours. Not to mention the difficulties in achieving PAN-specific routing capabilities, with BINs changing networks up to every few months. Bankhawk can save merchants millions in swipe fees by deploying an optimized routing strategy with your processor.
At Bankhawk, we do all this and a lot more. To hear more about our services and solutions, please contact Robert Dewen, CEO of North American Operations at robert.dewen@bankhawk.com.
