Visa’s controversial fixed acquirer network fee (FANF), already the bane to many in the acquiring industry, will gain even more controversy next April as the network makes changes in pricing tiers and in merchant-aggregator requirements for merchant tax IDs.
Visa initiated FANF in May 2012 to make up for lost revenue from the Durbin amendment. Durbin requires at least two unaffiliated debit brands on cards, and it resulted in Visa debit volume (and switch-fee revenue) to plummet by eliminating card contracts where Visa controlled both PIN and signature debit activity. A U.S. Department of Justice antitrust division investigation into Visa’s FANF policy remains open today.
Visa calculates FANF monthly but charges merchant acquirers quarterly. The fees, which Visa keeps for itself, also can vary based on whether the merchant operates in a card-present or card-not present environment, how many transactions it handles and whether it is a charitable or social service organization. Merchant Maverick notes here how the various pricing “tiers” calculate based on a merchant’s activities.
In its FANF rule changes taking effect next April, Visa primarily targets merchant aggregators and smaller merchants. Aggregators in particular will be affected because they will have to report their merchant clients with separate tax identification numbers instead of combining and reporting them under a single tax ID.
How this will affect aggregators’ costs will depend on sum of the fees for the individual merchants. Visa now caps the fee for card-not-present merchants, fast-food restaurants and aggregators at $40,000, when monthly volume hits $400 million. Aggregators also will likely incur greater expense tracking volume and fees for merchants through individual tax IDs, or at least in making systems modifications to accommodate the changes.
Most aggregators PYMNTS.com contacted for reaction to the FANF changes declined to comment, including Groupon, LevelUp and Etsy. PayPal declined an interview, but in a statement a spokesperson noted that the company worked closely with Visa to understand the intent of modifying FANF fees for companies such as PayPal.
“There will be no direct impact to PayPal merchant fees due to this FANF expansion and no material impact to our business financials,” the spokesperson said, not commenting on whether the changes will require significant internal systems work to comply. “It's common for us to occasionally revisit fee terms and contracts when our partners request a review.”
Visa also would not comment on the FANF changes. But in a statement, the network said it continuously monitors its business and makes adjustments to pricing as necessary based on market dynamics.
“As such, Visa is introducing select changes to its [FANF] structure, including modifications that are designed to lower – or in some cases, eliminate – FANF on volume from small merchants with less than $15,000 in annual Visa gross sales,” Visa noted in its statement. “We feel these changes could also serve to expand Visa acceptance among small businesses. While eliminating the fees for smaller retailers, Visa is also making other adjustments to FANF to improve the alignment of these fees, whether a merchant connects to Visa through an acquirer, processor, payment facilitator or other party."
Under the new FANF rates, acquirers with a merchant that handles $200 or less in Visa transactions in monthly volume pay nothing; they pay 15 basis points (0.15 percent) when the merchant handles between $201 and $1,249.99 in a given month. All other FANF tiers impose flat fixed fees.
The two new tiers replace three existing ones affecting card-not-present volume for fast-food restaurants, merchants and merchant aggregators. They also are embedded in a separate schedule for card-present merchants geared to store count instead of volume.