How Payments Data Quality Helps Reduce Scheme Fees
In this blog we are going to talk a bit about scheme fees. We know these can be a ‘black box’ for acquirers and merchants, but don’t fret- we are also going to talk about how to keep scheme fees under control! After a brief introduction on scheme fees and their impacts, read on for details on how quality payments data can help you to manage and reduce them.
How Payments Data Quality Helps Reduce Scheme Fees
Today we are going to talk a bit about scheme fees. We know these can be a ‘black box’ for acquirers and merchants, but don’t fret- we are also going to talk about how to keep scheme fees under control! After a brief introduction on scheme fees and their impacts, read on for details on how quality payments data can help you to manage and reduce them.
Interchange Fee Regulation: A Brief History
In 2015, the Interchange Fee Regulation (IFR) became effective in the European Economic Area. In addition to putting a cap on the interchange fees for consumer debit- and credit cards, this legislation mandated that payment processing fees should be ‘unblended’ by acquirers, driving more transparency in interchange fees, scheme fees, and the acquirer mark-up. As a consequence, unblended ‘interchange ++’ pricing structures were adopted more widely and applied by acquirers, resulting in pressure on margins for acquirers (especially acquirers that were offering the majority of their merchants blended acquiring fees). Although this legislation provided more visibility of payment costs for merchants, it also made understanding the actual costs more complex.
The Impacts of Interchange Fee Regulation
In the years following the implementation of the IFR, acquirers have seen an increase in scheme fees. Not only in the form of financial impact but also in terms of additional complexity (Brexit impact for example!) and the different types of triggers that cause fees to be applied. As opposed to interchange fees for which feedback per transaction is provided by the card schemes after clearing, this does not apply to scheme fees as these are applied in the form of daily, weekly, monthly, and quarterly fees.
Managing the Impact of Scheme Fees
Understanding and estimating scheme fees, as well as passing them through effectively for merchants that have agreed interchange ++ pricing is therefore increasingly important to manage profitability. Having a processing platform that can provide and help to make sense of transaction level data at each stage of a transaction as it flows through the ecosystem is essential for several reasons:
An incentive for innovation - Scheme fees are increasingly being used to drive innovation and spur the adoption of new technology by parties in the payments ecosystem. The Mastercard non-token based Card-on-File recurring transaction fee and the Visa non-EMV terminal capability fee are examples of these, where an acquirer needs to work closely together with merchants to help them adopt new functionalities and technology to avoid financial penalties.
Striving for excellence - Payments Processing Data Integrity fees apply where in specific parts of the processing of a payment transaction, certain data is not passed through appropriately by the processing platform. These fees cannot always be foreseen, and acquirers should closely collaborate with their processing platform in order to understand, investigate and resolve the data integrity issues to prevent integrity fees from the card schemes.
Assess, act, and inform proactively - New scheme fees are introduced and implemented every 6 months by the schemes. Being able to quickly assess the impact of these fees on a transaction level needs to be done as quickly as possible, in order to update the scheme fee estimation, communicate to the merchants impacted, and adjust pricing of the scheme fee components to limit the impact on the bottom line. This can only be done when you have a processing platform that provides high-quality, transaction level data and can help you understand the impact of a new scheme fee.
So what’s the key takeaway here? You need quality payments data in order to quickly assess, adjust and implement scheme fees. These three examples show the increasing importance of having the right technology partner to process your card payments. If you would like to understand how Silverflow can enable you with data and insights to manage profitability while offering competitive pricing to your merchants, drop us a line below.
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