- With growing speculation that MasterCard and Visa are set to raise credit card fees, we interviewed Clare Haskins, Head of Revenue Operations and Sinan Yagubov, Business Development Manager, at Ecommpay to get their thoughts on what increased credit card fees could mean for Open Banking?
Earlier this month, it was reported by a few media outlets that Visa and Mastercard would be raising their credit card fees.
The news sent shockwaves through the payments industry and understandably so - such a move from the two largest financial service Schemes could potentially cost merchants millions a year.
Since the announcement of the purported increases, Mastercard has already debunked the reports while Visa has remained silent.
Despite no further developments on this news, it does raise a few questions in the payments space particularly on the issue of Open Banking adoption.
If credit card fees increased quite dramatically, increasing payment processing costs, would this encourage more businesses to adopt Open Banking as a payment method?
It’s not exactly a straightforward answer.
A strong case for Open Banking
At first glance, the news that Visa and Mastercard are raising their credit card fees is good news for Open Banking says Clarke Haskins, Head of Revenue Operations at Ecommpay.
The way credit card transactions are processed means that they are subject to the interchange costs and scheme fees associated with all types of credit cards.
This is what Visa and Mastercard are proposing to increase.
As a result, cost goes up for everyone in the payment chain, increasing operating costs for acquirers or forcing a price increase for merchants on blended pricing plans.
Obviously, such an environment is unsustainable as margins are already quite thin for card processors to stay competitive in the market.
Here is where Open Banking becomes more attractive. Its fees per transaction are lower for the merchant and for the wider processing chain making it a viable alternative.
Moreover, Open Banking doesn’t come with any chargebacks as the money flow is instant and this is another plus for merchants; Instant funding.
If a merchant adds Ecommpay’s Open Banking Advanced solution to the consumers’ online check out experience, selecting Open Banking would help to offset the use of credit cards and the associated increase in fees.
Now for consumers, Open Banking might not always be the preferred option.
For example, if a customer is specifically using a credit card rather than debit card because they don’t have the funds available, then Open Banking is not a viable alternative for them as there is no credit line other than their bank overdraft facility.
So while Open Banking as a payment method might save merchants money, it may not always make sense for the consumer.
A quicker process but at the cost of consumer protection
Sinan Yagubov, Business Development Manager, at Ecommpay, shares similar sentiments: There is a good part and a bad part of Open Banking. When a customer pays with an Amex, Visa or MasterCard for example, the money first goes through the card scheme (Amex, Visa or MasterCard), before reaching the seller or merchant.
This adds cost and time to the transaction for the merchant because the payment has to be cleared with both the issuing bank and the card scheme. With Open Banking, there are no Scheme costs associated with a payment.
But the downsides of Open Banking, broadly speaking, is that it does not have any of the fraud protection a customer would have with their credit card.
For example, if a merchant sells a product which is falsely advertised, the customer can report this sale to their issuing bank and initiate a chargeback process with their chosen credit card.
However, with Open Banking, the customer is not afforded this protection.
When customers pay via bank transfer they do not have a chargeback concept as the seller validates and authorises the payment to the merchant.
For example, this is why customers in large value purchases, with longer time to delivery (i.e.fulfillment), such as Travel still prefer to pay by card rather than bank transfer because their money is insured by Visa and MasterCard.
We will have to wait and see if the news reports that Visa and Mastercard will raise their credit card fees will actually come into fruition and if that will necessarily lead to more merchants adopting Open Banking payment methods.
But in the meantime, Ecommpay’s Advanced Open Banking solution is available for merchants.
Let your customers pay directly from their bank accounts in seconds with a built-in-house solution that complements your existing payment portfolio.
