14
15
CMSPI – IAC State of the Industry Report
CMSPI – IAC State of the Industry Report
Section 1.2 – Global Cost Observations The competitive dynamics between card networks often lead to an escalation of fees in the four-party card model. This is because networks can use higher interchange fee revenues as a mechanism to attract banks to issue cards with their networks. Meanwhile, the ubiquitous nature of cards from the world’s largest networks and strict network rules means most merchants are compelled to accept these cards unanimously despite the associated fees. The phenomenon of competition leading to higher prices has proved to be an issue in the four-party card market across the world and explains why there has been a strong regulatory focus in many jurisdictions (see Section 5). 13 COMPARISONS BY COUNTRY A comparison of average card fees globally shows a huge fluctuation between countries, (Graph 1.1). Our data suggests merchants in the U.S. and Japan incur far higher credit card fees than merchants in other countries. We believe a significant factor in this is the hands- off regulatory approaches that have been taken in these countries (Graphs 1.2 and 1.3). Please see Section 5 for an exploration of global regulatory regimes.
WHAT’S A DUAL-MESSAGE TRANSACTION VS. SINGLE-MESSAGE TRANSACTION? Dual-message transactions are sent via the merchant’s acquirer to the issuer for approval with two distinct messages – an authorization request to authorize the customer’s account, and a separate settlement message to withdraw the customer’s funds. With dual-message functionality, merchants can process transactions wherein the final settlement amount is different from the authorization amount, such as transactions involving a tip. In the U.S., these transactions are typically non-routable between networks (see Section 5.2.2) and exhibit greater upward pressure on costs. The challenge for most observers is that while domestic networks have introduced dual-message routing solutions that can compete directly with the global networks, issuance and availability of those solutions have been limited. Single-message transactions are those wherein the authorization and settlement message are sent in a single message from the acquirer to the issuer. In the U.S. these are typically PIN-authenticated and routable between networks, therefore exhibiting greater downward pressure on merchant costs (see Section 5.2 for more information about this).
Single-Message Debit
Dual-Message Debit
3.50%
3.00%
Authorization & settlement occur simultaneously
Authorization & settlement occur separately
2.50%
2.00%
1.50%
PIN authentication
Signature authentication
1.00%
0.50%
Local Networks (w/ some global)
Global Networks (w/ some domestic)
0.00%
UK 2018 Credit and Debit
EU-12 2022 Debit
EU-12 2022 Credit
Japan 2021 Credit
Canada 2023 Debit
Canada 2023 Credit
Australia 2021 Debit
Australia 2021 Credit
USA 2023 Debit
USA 2023 Credit
China 2023 Debit
China 2023 Credit
New Zealand 2023 Credit
Mexico 2023 Debit
Mexico 2023 Credit
Interchange Network Fee Acquirer Fee Total MSC
Figure 1.5 – Dual-Message Debit v. Single-Message Debit
Graph 1.1 – Comparison of Average Card Fees Globally 14 15
13 briefings-psr-briefingoct2014.pdf (kansascityfed.org) 14 CMSPI analysis and estimates. This chart is based on data availability. For example, the UK’s Payment Systems Regulator (PSR) has not published an updated breakdown of card fee costs since 2018. 15 Average Credit Rates are exclusively Visa and MasterCard averages
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