Card fees for Retailers - are you overpaying on your Interchange ++ contracts?

Those retailers who operate successfully have to accept payments from their customers via credit, debit and prepay cards. To achieve this means contracting with payment service providers, also called acquirers, who manage the processing of such payments. However, behind this there are actually two additional parties to card transactions, being the card schemes such as Visa and Mastercard and card issuers such as Natwest and Citibank.

Retailers are charged in different ways for processing payments. Small to medium sized businesses often have a blended rate contract that provides fixed all-in-costs for all three types of fees and retailers largely know the card fee costs when contracting with the acquirer. However, larger retailers often have Interchange + + contracts that are generally more opaque as only one of the three fees - acquiring - is clearly defined in the agreements. The others, scheme and interchange, are passthrough fees which we believe can lead to a lack of transparency, errors and potentially overcharging.

Whilst this risk is reduced to a certain extent by EU regulations which provide caps for certain debit and credit card fees, there is limited regulation on other types of cards and no published rules on how scheme fees are calculated. Additionally, the card fee landscape is complex as there are over 100 types of fees with each fee type depending on the card type, country of the card, type of business, value of the transaction, type of authentications and many other parameters. In addition we have seen instances where scheme overhead or other fixed costs have been passed on to the retailers by acquirers, despite the fact that in theory they should only pass through transaction related charges. Hence, it is often difficult for retailers to easily determine whether they have been correctly charged.

I would suggest if you are a corporate with significant retail payments, you should review your Interchange++ agreement and fees carefully focussing on two things in particular - whether passthrough fees have been clearly defined and whether the acquirer has charged you only the correct core transaction related fees as passthrough costs. You should also consider engaging with your acquirers early in the billing process to improve transparency in pricing and increase trust in billing. The benefits could be hundreds of thousands or in some cases even millions of pounds per year.