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CMSPI – IAC State of the Industry Report
CMSPI – IAC State of the Industry Report
Section 5 – Payments Industry Regulation In the world of retail, a seemingly small percentage shift in costs can spell the difference between success and struggle. For merchants, card processing fees are not just a line item on a ledger; they impact everything from margins to reinvestment and competitive edge. While the average card processing fee might appear modest, it accumulates with every transaction, often obscured by intricate fee structures that differ by network, transaction size, and transaction type. Consider a bakery selling a croissant for $3. A 2% processing fee turned single 6 cent fee might seem negligible but the true impact can be difficult to grasp in an opaque web of charges. As transaction volume increases, particularly in a bustling bakery, those seemingly small cents multiply into dollars, then hundreds, then thousands, eroding profitability and hindering growth. As demonstrated in Sections 1-4 the landscape of payments is evolving. Ecommerce now accounts for a sizeable portion of transactions, often carrying higher fees than in-store purchases. Additionally, emerging payment methods like digital wallets and open banking introduce new fee structures and potential complexities. Merchants navigating this shifting landscape must not only manage costs but also adapt their systems and customer experiences to accommodate these diverse payment options – another layer of challenge that adds to the burden of rising costs. Finding ways to manage and optimize these costs is not just about financial sustainability; it’s about staying competitive and thriving in an ever-evolving, competitive retail environment. For over three decades, policymakers and antitrust authorities have followed payments industry developments closely. From twenty-year old antitrust litigation in the United States, to fee caps in Europe, to opening up the acquiring market in Chile, to requiring industry adoption of pay- by-bank solutions in Brazil, there is a long history of the government and court intervention in payments. As described in this report, there are some industry dynamics - particularly those related to global card networks fee and rule setting practices - that are ripe for scrutiny due to increasing global costs, complexity, and fraud liability distribution associated with merchant card acceptance.
Section 5.1 – Types of Government Intervention
Governments have sought to correct industry inefficiencies through various interventions including, but not limited to: 1) instituting fee caps; 2) requiring competition via dual network routing; 3) ensuring card networks do not inhibit merchants from offering discounts or imposing surcharges for certain payment types; and 4) mandating issuances and acceptance of new payment methods or of new market entrants. This section will review these global policy interventions, and what the positive and negative impacts have been where implemented, using case studies from around the world.
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Co-badging
Interchange and Merchant Service Fees
Surcharges and Discounts
Other
Government Development of New Payments
Intervention Type
Graph 5.1 – Number of Unique Regulatory Interventions Globally, by Intervention Type
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