By Robert Yeakel / NGA Director of Government Relations
It has been over a year since the coronavirus pandemic upended daily life and transformed how customers interact with retail. Almost overnight, businesses built out their e-commerce platforms to reach a customer base that – due to lockdowns or public health concerns, or both – could no longer shop in person.
Even grocery, a staple of traditional brick-and-mortar commerce, was forced to adapt to the changes ushered in by COVID-19. But the pandemic has shifted not just how customers are shopping, but how Americans are paying for their goods. And these changes have drawn renewed attention to the issues merchants have to deal with when customers pay with card.
Two of the most impactful payments trends for grocery and other retail industries in 2020 have, unfortunately, led to more costs for merchants: the growth in debit and a rise in card-not-present transactions. And with the costs of card acceptance growing, regulators and Congress are taking a renewed interest in identifying the bad actors that continue to game the system and leave merchants holding the bag.
For most merchants, the news that the pandemic has led to more Americans using their debit cards should be welcomed. Debit, after all, is subject to regulated fee caps and affords merchants the opportunity to route transactions over cheaper rails. But the pandemic has also sparked a dramatic increase in card-not-present (CNP) transactions. With customers no longer dipping, swiping or tapping their cards in-store, merchants are forced to contend with the barriers that come with accepting PIN-less debit, as well as the additional fees and fraud liability that CNP transactions entail.
On average, merchants pay roughly 20 additional basis points in fees when a customer pays with a credit card online or via their mobile device. On the debit side, the growth of PIN-less debit for e-commerce has led to merchants losing their ability to route these types of transactions. Many of the larger debit card issuers have not enabled PIN-less on their cards, which forces merchants to have to route these transactions over the costlier global network rails (instead of cheaper, unaffiliated networks).
Fortunately, these merchant issues are catching the attention of both regulators and Congress. NGA met with congressional offices this winter to raise awareness of proposed fee hikes on the horizon. In early March, U.S. Sen. Dick Durbin (D-IL) and Rep. Peter Welch (D-VT) called on Visa and Mastercard to cancel their planned April interchange fee increases that would have saddled over a billion dollars of additional credit card fees on merchants. Sen. Durbin also called out the networks during a recent antitrust hearing, asking, “Where is the policing authority to stop this duopoly from doing this to every merchant and retailer in America?” The networks responded to the public criticism by announcing they would be delaying their April fees for a year.
On the regulatory side, NGA and other merchants met with the Federal Trade Commission in March to update the agency on the barriers to routing PIN-less debit transactions. And more recently, it was announced that the Department of Justice is investigating Visa for possible anticompetitive practices surrounding debit routing.
Ultimately, 2021 is shaping up to be an interesting year in the card payments space. The pandemic has placed a renewed emphasis on many of the decades-long issues that merchants have had to traverse when it comes to accepting debit and credit cards. With continued advocacy, and additional scrutiny of the bad actors, substantive changes might just be on the horizon.
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