Visa plans to lower the maximum surcharge that retailers and other merchants can impose when consumers use credit cards to pay for a transaction, but its move is likely to face resistance.

The card network giant proposed in a January notice to merchants that any surcharges on credit card purchases must be capped at 3% of the transaction, down from 4% currently, beginning April 15. “The maximum amount will now be included in the Visa Rules,” the Jan. 12 notice seen by Payments Dive said. 

Retailers, restaurants and other merchants that accept credit cards from their consumers can add surcharges to the tab to recoup the interchange fees they pay the bank card issuers, networks and other middleman processors whenever a customer swipes a card. The surcharges have shown up more often in recent years as merchants have faced higher interchange fees. 

Over more than a decade, interchange fees have been a constant source of friction between merchants and the companies that impose them. Banks that issue credit cards work with the card networks, such as Visa, to determine the interchange fees. Some lawmakers and regulators have sought for decades to curb the fees and put restrictions on imposing them.

In response to Visa’s latest move to lower the cap on surcharges, some vendors that provide payments software and processing services to merchants say there will be pushback. Visa didn’t respond to a request for comment on the surcharge change notice.

The average interchange fee for Visa and Mastercard card transactions in 2021 was 2.22%, according to a report last year from card industry research firm the Nilson Report, but that average likely edged up last year following increases for some cards.

Merchants, ISOs likely to balk

Dominick Mangiardi, the CEO of Palatine, Illinois-based Coastal Payments, said the merchant customers his firm services have “loved” the surcharge program that it began offering five years ago. With respect to Visa’s plan to lower the surcharge cap, Mangiardi said, “Ain’t going to happen.”

He asserted Visa’s proposal ultimately won’t go into effect. “Three percent is not enough profit for anybody to do this program,” Mangiardi said. 

Banks would have to play a role in any such surcharge change and that’s not going to happen, he contended, noting that the proposal is complicated by the fact that different cards have different interchange rates.

Indeed, in the notice, Visa suggested its final rules could be different from the “advance copy” provided in connection with the notice. “If there are any differences between the published version of the rules and this advance copy, the published version of the rules will prevail,” the notice said.

Merchants are on one end of the credit card purchase equation and the bank card issuers are on the other end cooperating with Visa. In the middle are card transaction processors, independent sales organizations and their agents who also take a cut of the fees.

It’s the professionals in the middle that will be most concerned about Visa’s move, said CCSalesPro CEO James Shepherd, a consultant and software provider to merchants. Merchants have tapped the ISOs’ surcharge programs to avoid absorbing the swipe fees so ISOs will revolt against lowering the cap, Shepherd said. “Visa has been very heavy-headed about it,” he said, acknowledging that “Visa has all the leverage.” 

Shepherd has been explaining the changes that merchants will face in his YouTube channel programming tied to an industry media outlet he operates. Based on anecdotal input from merchants, he believes Visa has also stepped up its efforts to make sure merchants are complying with its network rules.

Threat of regulation looms

In Shepherd’s view, Visa is worried about consumers complaining to regulators that surcharges increase the cost of purchases because those complaints could potentially trigger more regulation of the industry. The industry is more regulated with respect to fees in some other countries, including the United Kingdom, he explained.

“Visa does not want to be fighting the same regulations here that they’re fighting in the U.K.,” Shepherd contended.

Indeed, Sen. Dick Durbin (D-IL) sought last year to impose new regulations encouraging the use of alternatives to Visa and Mastercard networks in an effort to reduce their dominance in the industry. He is expected to reintroduce the legislation this year.

He won an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 that instituted restrictions on the fees that can be charged for debit cards. As a result, the average debit interchange fees are less than a third of the credit fees. 

Shepherd suspects that if Visa tries to follow through on its plans to put downward pressure on surcharges, it will face litigation in the next five years. He doesn’t blame Visa for trying to protect its relationship with consumers, but he also sees Visa potentially interfering with the merchants’ right to communicate pricing to their customers as they see fit.

The new Visa rules will apply only in the U.S., where surcharges are not prohibited by state laws, as well as in U.S territories and Canada, according to the notice. A few states ban the surcharges, but most have made them legal in recent years.

As part of its rule update notice, Visa also said that under the new rules, merchants will only have to notify the acquirers who process their credit transactions, not Visa, 30 days in advance of imposing a surcharge.