Credit cards have practically become an extension of ourselves, and since the COVID-19 Pandemic, they have become an indispensable tool in our daily lives, with coins being rarely used for payment.
However, beginning in January 2025, there is news that many people will not like. Merchants who accept VISA cards will face a new challenge: the fees for using them may rise, causing consumer prices to rise to compensate.
This change comes at a time when small businesses are already struggling with thin margins, and lawmakers are looking into ways to improve competition in a market dominated by Visa and Mastercard.
So, if you’ve ever wondered how fees affect merchants’ day-to-day operations, we’ll explain how they will affect payments in the future.
What is the increase announcement?
The notice was issued on October 10th through the processor Global Payments, and it specified three types of new adjustments:
- The first, called “Improper Use Fee”, which will be applied when a transaction is authorized but not settled within a certain period, in this case, it will increase from 9 cents to 15 for each transaction that is made.
- The so-called Free Transmission Fee, which is paid by financial institutions. This will rise from 18 to 25 cents for each transaction.
- Finally, the Digital Commerce Service Fee in the USA, which will be based on the transactions made (instead of settlement and clearing).
Remember that these changes will be established only for merchants, but, most likely, with this price increase, the changes will also end up being reflected in the products that consumers buy.
Why are Visa fees going up?
The US Senate is looking into Visa and its main competitor, MasterCard. Lawmakers from both parties have described the current fees as onerous (particularly for small businesses).
The debate has centered on interchange fees (which typically range from 1% to 3% of each transaction). While the Electronic Payments Coalition reports that those fees have not increased since 2017, this has continued to put pressure on merchants.
Legislators are still evaluating the Credit Card Competition Act, which seeks to force networks to provide an additional processing option to Visa and MasterCard. With this change, merchants could benefit from increased competition and lower costs.
How and who will these changes affect?
First, the effects on merchants are immediate. Higher fees may reduce profit margins for businesses that process these Visa card payments, particularly those that handle a high volume of low-value transactions.
Consider a local coffee shop that sells mid-priced items (such as a $2.50 coffee). The processing fee for each transaction could range from $0.05 to $0.08. While this may appear to be a minor change, when that coffee shop processes 100 or 200 credit card transactions per day, it could add up to around $180 per month.
Making ends meet could be difficult for businesses with low profit margins, and they would still have to raise their product prices to compensate for the effects of this fee.
Consumers, even if they do not pay this fee, will see prices rise (as in the example above) as merchants try to survive these new fees, so they, too, will be affected by these fees, despite being collateral damage.
This change will open up a new chapter in the debate over credit card payment processing costs, which, while appearing to be a minor adjustment, have already proven to be a significant burden for small merchants over time.
In a world where we increasingly use our smartphones to pay anywhere, these changes must be considered so that consumers ultimately bear the cost of technological advancements.