The flow is on a roll. Are small traders getting shaken? | Payments Source

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The drastic shift to credit and debit card spending that happened last year has been a boon for cards and mobile wallets, but it has left merchants paying more to handle payments that were previously made. cash.

It was mostly a double-edged sword in Visa’s case; the card brand took advantage of this change, but also lost a substantial amount of travel spending once consumers and businesses went into lockdown.

Debit fees were already under pressure from the Durbin Amendment to the Dodd-Frank Act of 2010, which capped sweeping fees and instituted a requirement that merchants use more than one network to route debit payments . Now the question is whether this law has kept up with the times.

“Large merchants certainly use what’s called smart routing to use PIN debit networks when it is to their advantage, but many small merchants don’t have the technical staff or payment knowledge to even understand their options. Sarah said. Grotta, Director of Debit and Alternative Products Advisory Services at Mercator Advisory Group.

The Ministry of Justice is review Visa debit card practices. While Visa could technically be in compliance with the Durbin Amendment, merchants are hoping that regulatory pressure could prompt Visa – which has the lion’s share of the debit card market – to overhaul its practices in favor of merchants.

Visa’s global debit volume increased 21% in the quarter ended December 31, 2020, compared to the same period a year earlier, while credit card spend volume declined 3%, a Visa CEO Vasant Prabhu told analysts earlier this year.

Now is not the time for Visa to defend itself against new antitrust allegations, just four months after DoJ declared Visa “monopolist” in online debit when he pursued the card network, finally force Visa to give up its proposed $ 5.3 billion acquisition of the Plaid data aggregator.

“Visa is back on its heels after the debacle in its attempt to acquire Plaid, in which Visa became involved in documents found by the DoJ showing that Visa was considering at least one anti-competitive action,” Grotta said.

With small merchants struggling to recover from the pandemic, and online debit transaction volume persisting well above pre-pandemic levels, the DoJ could pressure Visa to pave a way to help small businesses reduce their processing costs, Grotta speculated.

It’s not just small merchants complaining that Visa is abusing its market power to increase the volume of online debit on its network. Large merchants with more in-depth technical resources have further complaints about how Visa influences debit card routing for online signature debit transactions (no PIN) and lower cost debit transactions requiring a code. PINE.

“Visa is pressuring large card issuers not to allow PINless debit through various routing volume agreements and other incentive contracts,” said Robert Yeakel, director of government relations at National Grocers Association, a Washington, DC-based nonprofit organization representing more than 1,500 independent supermarkets. the operators.

A dozen independent PIN debit networks are available to all merchants, compared to the online or signature option which tends to be Visa or Mastercard debit rails. The signature debit transaction fee is around 0.26%, more than double the standard PIN debit price at 0.11%, according to a recent report by equity analyst firm KBW, which cited the latest data from the Federal Reserve.

Visa did not comment on the situation after confirming in a March 19 SEC filing that the DoJ had opened an investigation into its debit practices in the United States.

The specific remedies for merchant complaints about debit routing are unclear.

The Fed could impose more throughput routing choices, but that would likely only create additional complexity and confusion, said Eric Grover, director of Intrepid Ventures LLC.

“The Fed previously considered, but rejected, requiring all debit cards to be activated on at least two unaffiliated signing or PIN-less debit networks; and two unaffiliated PIN debit networks, but I doubt we’re going to go there, ”Grover said.

Any payment network, including Visa, has various levers to convince issuers to prefer their network, making it harder for independent national PIN debit networks like Shazam, NYCE, Pulse, and Star to compete for signature transactions. and without a PIN, Grover noted.

“If the Fed considers that these pricing strategies materially prevent merchants from exercising a debit routing choice, it could force Visa to adjust its pricing,” Grover said.

“In some cases, some large regional debit networks offer a PIN-less debit option, but it is not necessarily cheaper. [than Visa’s existing online debit rail]”, Wrote Sanjay Sakhrani of KBW.

Mastercard has remained out of the fray so far, but that could change if the government establishes new debit card pricing rules regarding network routing and pricing, Mercator’s Grotta said.

“Visa has a much larger debit market share than Mastercard, but if changes are needed in the payments industry regarding the way debit transactions are routed, it is highly likely that Mastercard will need to implement the same changes. “said Grotta.

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