Unbundled Pricing
Opportunities for acquirers?
From January 2011, all
European acquirers must offer “unbundled” merchant
service charges following an agreement by the EU
Commission with Visa Europe and MasterCard. In
practice, “unbundling” means that acquirers must
separate out the costs associated with processing each
card scheme and further subdivide by card programme,
e.g. consumer, commercial and debit cards. EU acquirers
will no longer be able to combine all credit and/or
debit card products unless specifically agreed with
merchants.
From an acquirer’s
perspective, the new MSC structure will enable a much
higher degree of accuracy in pricing the acquiring
service. For example, it is often difficult for
acquirers to calculate the exact volume split of
domestic and international interchange for each card
type accepted by merchants. As a result, acquirers
often take a loss on certain card products under the
traditional bundled pricing method.
It is therefore
predicted that EU acquirers will offer interchange plus
pricing to many more merchants than is currently the
practice. In addition, acquirers are expected to start
charging separately for individual elements of the
acquiring service, for example, authorisation fees, ACH
rejects, chargebacks, refund processing and statement
fees. Inevitably unbundled MSCs will also present
opportunities to increase profit margins by charging for
embedded services now broken out, particularly the high
costs of free POS terminals and telecoms. Acquirers
will also seek to remove cross subsidies and unbundle
domestic debit costs currently recorded as an uplift on
Visa and MasterCard acquired brands.
What is the impact on
merchants? They will have much greater transparency and
detail on the costs of acceptance as unbundling will
increase choice. Merchants will begin to pick and
choose which card product to accept. Products with high
interchange (e.g. business cards) may be declined or
surcharged.
Once all the different
aspects of pricing are assessed and charged, the reality
may be that merchants will end up paying more for their
acquiring services rather than less – the opposite to
what the legislation was designed to achieve.
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