The payment card industry – which is predominantly governed by Visa and Mastercard – is about to undergo a significant change in the structure of transaction fees, which will affect every merchant currently accepting debit cards for their goods and services.
Card Processing Fees
Historically, merchants have been charged a flat rate fee for debit card processing (e.g €0.40 per transaction, regardless of the value.) In contrast, merchants have been charged a pro rata fee for credit card transactions (e.g. 1.95% of the value of the transaction.)
From the 1st of January 2016, Visa and Mastercard will implement a percentage fee for debit card transactions. Merchant banks will be obliged to charge merchants for debit card processing in accordance with the payment card industry regulation.
What is interchange?
‘Interchange’ is the term given to the fee paid by the merchant bank to the cardholder’s bank (issuing bank) for processing a transaction on a credit or debit card.
It’s not all bad news…
In March 2015, the European Parliament voted to cap interchange for debit card transactions at 0.2%. However, on the 13th of October 2015, in the Budget 2016 – the Irish Government decided to go one step further and cap interchange for debit cards at 0.1%. As a result, Ireland’s debit card interchange rate is the lowest in Europe.
What does this mean for me?
Even though the Government has capped interchange at 0.1%, this is purely capping the fee paid by your merchant bank to the bank of the cardholder. The merchant bank will be within their rights to charge a higher rate to merchants, as they attempt to recoup the costs for processing debit cards.
Without line of sight on what your merchant bank is likely to charge you for debit cards, it is safe to say that merchants with an average transaction value (ATV) of over €100 will experience a significant increase in their cost of processing debit card transactions. As you will see below I have provided an example to give you an idea of how your costs may change.
Old rate: 45c
New Rate: 0.50%
Old Interchange Cost
New Interchange Cost
Unfortunately there is no way of getting away from Debit Cards. As society moves from the use of cheques and card technologies improve, the tendency is for shoppers to use credit or debit cards for purchasing goods and services.
As seen in the graph below, debit and credit card transaction value and volumes are growing at a significant rate;
Further, as you will see, as the number of purchases paid for in cash slowly dwindles, debit card transactions grow at a significant rate.
What happens next?
Merchant banks in the Irish market (e.g. Elavon and AIB Merchant Services) will be making contact with their customers within the next three months to advise them of their new debit card rates.
While at WorldNet, we will continue to work for our customers to achieve the best rates possible with our merchant bank partners in Ireland.
If you have any questions regarding the regulation change, call us today on 01 – 524 1099.