Visa and Mastercard Rate Change in Spring 2020

Running a business isn’t always easy, but understanding your payment processing statement should be. To help you understand the interchange rate adjustment and what it means for your business, we’re breaking down everything you need to know.

What is interchange pricing?

Interchange pricing, (also referred to as cost plus pricing) is often considered one of the most transparent pricing models.

With interchange pricing, the rate that you pay differs based on the card type and card brand that your customer uses. These interchange rates are set and regulated by card brands (Visa, Mastercard, Discover, American Express, Interac). The Visa interchange rates and the Mastercard interchange rates will vary based on the tier of card used (standard credit cards versus premium rewards cards), and these interchange fees are subject to change a few times per year.

On this pricing model, your business pays the credit card’s corresponding interchange rate plus a markup for your payment processor’s services.

What Pricing Model is Right for My Business?

What is an interchange rate adjustment?

The interchange rate is the standard fee that card brands charge for processing a credit card transaction. Card brands generally adjust their interchange rates associated with certain credit cards or transaction types (ie: card-present or card-not-present).

What’s changing this spring?

• Visa has announced it will be reducing interchange fees by 0.17% for Visa Chip Electronic Classic, Gold Platinum categories, starting April 1, 2020
• Mastercard has announced it will be reducing its Domestic Consumer Core card types by 0.38%, starting May 2020

Here’s an example of how this could affect what you pay for credit card processing: If you processed $50,000, Visa’s 0.17% reduction would save you $85.

Why and how often do interchange rates change?

Visa and Mastercard are making changes as part of their commitment to reducing domestic consumer interchange fees as a part of a larger initiative to lower costs for small and medium-sized businesses.

The Visa interchange fees and Mastercard interchange fees are updated on a semi-annual basis, with the new rates taking effect in April and October of each year.

These rates can either increase, decrease, or remain the same, and they change based on factors such as industry size, fraud risk, and card types.

What does a rate change mean for my business?

Before the rate changes, you should receive a communication from your payment processing company to notify you of the upcoming changes. This communication is often in the form of a short message on your monthly payment processing statement.

Depending on the update, your payment processor will either increase, decrease, or leave your rate unchanged. Once the rate change takes effect, you’ll see it reflected in your statement and fees accordingly.

When it comes to the spring 2020 update, these rate adjustments should result in reduced processing costs for your business, which your payment processor should be passing on to you.

If your business is unhappy with your merchant services provider, the rate change also creates the perfect opportunity for you to leave your contract.

Not sure if it’s time to switch? Read the 6 signs it might be time to break up with your payments provider.

Can I get out of my existing contract if my rate changes?

Yes! If you are a Canadian merchant, and you want to get out of your existing contract with your payments provider, the rate change is the perfect time to make the switch.

According to the Code of Conduct for the Credit and Debit Card Industry in Canada, merchant service providers are required to give customers a minimum of 90 days notice for any changes to their fees.

If you receive a fee increase, a new fee is introduced, or if your payment processor does not pass-through the full savings from any interchange reductions, then you are able to cancel your contract during this 90 day period without any penalties.

Keep in mind this applies to early contract cancellation fees and doesn’t extend to equipment leases, which you may need to pay a fee to get out of.

If you’re considering leaving your current contract, this means you can leave without penalty fees until April 1, 2020.