Abstract
New Report Examines Merchant and Acquirer Costs in a Regulated Payments
Market
Boston, MA -- With the July 2010 passage of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the financial services sector has faced
extensive changes in conducting business under an increasingly complex
regulatory framework. The payments industry was included within the scope of
the massive legislation, which gave the Federal Reserve regulatory power to
cap payment network interchange rates for debit card transactions and to
govern the rules that guide merchant, processor, and bank routing of debit
card transactions.
While all parties in debit card transactions have or will soon feel the impact
of the new regulations, Mercator' s new research report, The Cost of Payment
Acquiring vs. the Cost of Card Acceptance: Acquirer Pricing Strategies
Post-Durbin, centers on the payment acquirer and how Durbin rules fit in with,
and might change, the traditional market paradigms governing the cost of
payments.
"The markup methodology for acquirer interchange cost has experienced a period
of significant revision more recently, though, with many more players in the
market adopting (and many more merchants demanding) an "interchange plus"
structure that more clearly demonstrates the acquirer' s expense on each card
transaction. A laudable development!" David Fish, senior analyst at Mercator
Advisory Group and author of the report comments. "It' s also important to note
that "tiered" is not necessarily synonymous with "opaque" - acquirers have
been known to go to market with a tiered pricing system for sake of simplicity
but then disclose interchange qualifications on merchant activity statements
and through online merchant reporting systems."
Highlights of this report include:
The biggest issue facing the payments industry, and the affect of the Durbin
Amendment on the division of value in the value chain.
The sides of card transaction where risk exists and is alleviated.
The competing preferences that may split acquiring industry market strategy.
The impact of Durbin on card payment acceptance costs to merchants.
The opportunity for acquirers to invest in technology and innovation, and the
parties that stand to reap the benefits.
One of 10 exhibits in this report:
This report is 22 pages long and has 10 exhibits.
Companies mentioned in this report include: Braintree Payments, Chase
Paymentech, Elavon, First Data / Star, First Hawaiian Merchant Services,
Global Payments Inc., Heartland Payment Systems, Intuit, Litle & Co.,
MasterCard, Merchantservice.com, Mercury Payments, North American Bancard,
NYCE, PNC Merchant Services, Pulse, Sage, Square, TSYS Merchant Solutions,
United Bank Card, Vantage Card, Vantiv, Visa Inc. / Interlink, Wells Fargo
Merchant Services, and WorldPay.
Members of Mercator Advisory Group have access to this report as well
as the upcoming research for the year ahead, presentations, analyst access and
other membership benefits.
Table of Contents
Executive Summary
Introduction
1. Payment Pricing 101 - It' s All About Risk (Or at Least it Used to Be)
- Durbin Erases the Nuance of Risk
2. Acquirer Pricing Strategies - Tradition and Evolution
- Durbin' s Impact on Acquirer Pricing
3. Merchant Card Acceptance Costs
- Conclusion - What to Do with All These "Durbin Dollars?"
- Acquirers - You Choose: Merchant Attrition or New Price War
- The Case for Increasing Margins
- Copyright Notice
Table of Figures
- Figure 1: Fraud Risk Liability for Different Transaction Types is Shared
by Network Participants
- Figure 2: Visualizing the Fed' s Durbin Survey - Debit Issuer Dollar Volume
- Figure 3: PIN Debit Least Vulnerable to Fraud
- Figure 4: Consolidation of the Banking Space: Commercial Banks and Savings
Institutions in the United States 1990 - 2011
- Figure 5: Retail "All Other" Debit Interchange Pricing Changes 2005-2011
- Figure 6: Merchant Transactional Costs for Card Payments
- Figure 7: Merchant Non-Transactional Costs for Card Payments
- Figure 8: The Durbin Effect: $11 Costs More Than it Used To
- Figure 9: Market Share of the Top 10 U.S. Acquirers - PIN Debit Dollar
Volume 2010
- Figure 10: Top 10 Acquirers' Proportion of PIN Debit to Total Dollar
Volume 2010
