Hello! Usually, when someone begins to compare different operators of Internet payments, the conversation begins with the rate that the operator charges for the transaction. Today we will talk about this parameter and try to analyze it in detail. The transaction rate (discount rate) for a Trade and Service (TSP) enterprise is usually set as a percentage of the payment amount, and sometimes a fixed amount is also added to the percentage. In this case, the commission is charged for a successful authorization operation (authorization), and also, in some cases, can be charged for declined (declined). Refunds and chargebacks may be subject to an additional fee.
In Russia, it is generally accepted to take% of the transaction amount for successful authorization. Abroad, fixed is often added to percentages, while the fix can be broken down into separate operations (authorization, clearing, etc.). High-risk merchants very often get paid for both a rejected operation and an additional cost for refunds and chargebacks.
So, the authorization payment rate consists of:
- interchange fee (commission returned to the issuing bank)
- fees charged by International Payment Systems
- margin of the acquiring bank and agents (if any).
We will analyze these concepts in more detail!
Interchange fee (IF)
It was introduced in 1971 by Visa (then National Bank Americard Inc) for transactions in which different banks acted as issuer and acquirer. This commission was paid by the acquirer bank to the issuing bank and initially amounted to 1.95% . And the acquiring bank could set the acquiring rate (merchant discount rate) above the interchange fee in order to cover its expenses and make a profit.
Until 1971, when the card holder of Bank A made a purchase in a retail outlet serviced by Bank B, the entire merchant discount was transferred to Bank A. In fact, this rule meant that the acquiring bank did not receive any profit from transactions with cards of other issuers. Visa did the same with MasterCard.
Now Interchange Fee are installed by Visa, MasterCard payment systems. IF has complex pricing, which depends on the type of card used (classic, premium, etc.), regions and jurisdictions, a credit or debit card, type and size of a TSP and the method of conducting a transaction (on the Internet, by calling MOTO, etc. d.). For example, IRF rates for premium cards will usually be higher than for classic cards. And credit card transactions will be higher than premium transactions. Sales made without a personal presence, such as orders by phone or via the Internet, usually have higher interchange rates than transactions with the cardholder’s personal presence (POS terminals). It is also important to note that interchange rates are a mechanism for encouraging the issuing of cards of a particular brand.
If there were no IF, the issuing bank would have to cover the costs of servicing cards (such as the prevention of fraud, equipment maintenance, and support for cardholders). In this case, the bank will either increase the cost of servicing the cards for the holder or stop using them altogether.
IF rates depend on the region and jurisdiction, and more specifically, on the location of the acquirer and issuer. Distinguish between local, intra-regional and inter-regional IF rates:
- Local (domestic / intra-country) - the acquirer and issuer are in the same country.
- Inner-regional (inner-regional) - the acquirer and issuer are located within the same region.
- Inter-regional (acquiring) and the issuer are in different regions.
Transactions crossing the border of one country are called cross-board (cross-border). For example: an acquirer is located in Latvia, an issuer in Russia. Such transactions will be inter-regional for Visa (regions Visa Europe, CEMEA), and intra-regional for MasterCard (transactions between sub-regions of Western and Eastern Europe).
By the way, the practice is widespread in the Russian Federation in the event of which it is stated that “Visa / MasterCard are American companies. All questions to them! ". In fact, questions on Russia are decided by Russian banks as participants in the IPU, as well as the regulation of interchange fee is entirely on their conscience. High IF rates are beneficial for banks - they earn on every transaction.
In the countries of the European Union and Australia, IF reductions were sought through the courts. For example, the European Commission in 2015 approved a decision to reduce the IF for MasterCard between EU members to 0.2 / 0.3% on debit / credit cards.
In Russia, the average interchange for e-commerce transactions with 3D Secure is about 1.6% . But rates vary between payment systems. For example, MasterCard openly publishes its IF. 3D-Secure support on the side of both the issuing bank and the acquiring bank falls into the Full UCAF category.
For each “set” IF, there is a set of commissions (fees) of the IPU for various operations. By the way, the Ministry of Railways takes a commission not only for authorization operations from the acquirer, but also for various operations from the issuer. MPS rates are quite low, and the authorization fee may amount to hundredths of a percent of the total. Their distinctive feature is that the authorization fee is fixed and depends on the size of the amount and the number of operations. In most cases, the commissions are closed; moreover, the rules of the IPU prohibit acquirers from disclosing them to third parties.
For Russia, after building the NSPK, Visa and MasterCard published their intra-Russian commissions:
For example, the cost of clearing for an acquirer with a total monthly number of transactions of less than 50 thousand for a transaction of less than 5 euros is 0.0080 EUR = 0.64 RUB (at the rate of 1 EURO = 80 RUB). That is why many acquirers and issuers beat authorizations in small amounts (less than a few rubles), since for them such transactions become unprofitable.
But if the authorization fee within one country is hundredths of a percent of the transaction amount, then in cross-border transactions, the Ministry of Railways already imposes tangible commissions. For example, the fee for an inter-regional Visa transaction may be 0.4% (the so-called cross-border fee).
In the end
The Internet acquiring rate is almost always lower in the country whose cards you accept (applying a cross-border fee, inter-regional interchanges, etc.). Moreover, if the company works with the Russian market (its counterparties are also located in Russia), and the acquiring bank is in Europe, the company also loses on double currency conversion:
- We write off RUB -> convert to EURO.
- Convert EURO -> pay in RUB with counterparties.
That is, in fact, Visa / MasterCard play the role of banks, since in the first case you buy currency, and in the second you sell it.
Thank you for reading to the end, I will be glad to answer any questions.