Cost of acquiring

Hello! Usually, when someone begins to compare different operators of Internet payments, the conversation begins with the rate that the operator takes for conducting the transaction. Today we will talk about this parameter and try to analyze it in detail. The transaction cost (discount rate) for a Trade and Service (TSP) enterprise is usually set as a percentage of the payment amount, and sometimes a fixed amount is added to the interest. In this case, the commission is charged for a successful authorization operation (authorization), as well as, in some cases, may be charged for a declined (declined). Refund and chargeback may be subject to additional charges.

In Russia, it is generally accepted to take% of the transaction amount for successful authorization. Overseas, fix is ​​often added to interest (fixed), while fixing can be broken down into separate operations (authorization, clearing, etc.). From high-risk merchants, they often charge for both the declined operation and the additional cost for refands and chargebacks.
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So, the rate of payment (authorization) consists of:

• interchange fee (commission returned to the bank that issued the card)
• Commissions charged by International Payment Systems
• mark-up of the acquiring bank and agents (if any).

Let us examine these concepts in more detail!

Interchange fee (IF)

It was introduced in 1971 by Visa (then National Bank Americard Inc) for transactions in which different banks acted as issuer and acquirer. This commission was paid by the Acquiring Bank to the Issuing Bank and initially amounted to 1.95% . The acquiring bank could set the merchant discount rate above the interchange fee to cover its costs and make a profit.

Until 1971, when the Bank A cardholder made a purchase at the merchant bank serviced by Bank B, the entire rate (merchant discount) was transferred to Bank A. In fact, this rule meant that the Acquiring Bank did not receive any profit from transactions with cards of other issuers. Similarly, Visa entered MasterCard.

Now Interchange Fee are established by payment systems Visa, MasterCard. IF has a complex pricing, which depends on the type of card used (classic, premium, etc.), regions and jurisdictions, credit or debit card, type and size of the PTP and the method of conducting the transaction (on the Internet, by calling MOTO, and so on. d.). For example, IRF rates for premium cards will usually be higher than for classic cards. And credit card transactions will be higher than premium transactions. Sales made without personal presence, such as orders over the phone or via the Internet, usually have higher interchange rates than transactions with the personal presence of the cardholder (POS-terminals). It is also important to note that interchange rates are a mechanism for encouraging the issuance of cards of a particular brand.

If it were not for IF, the issuer bank would have to cover the costs of card servicing (expenses such as fraud prevention, equipment maintenance, cardholder support). In this case, the bank will either increase the cost of servicing the card for the holder, or stop using them altogether.

IF rates depend on the region and jurisdiction, and more specifically, on the location of the acquirer and issuer. Distinguish between local, intra-regional and inter-regional rates IF:

1. Local (domestic / intra-country) - acquirer and issuer are in the same country.
2. Inner-regional (inner-regional) - the acquirer and the issuer are within the same region.
3. Interregional (intra-regional) - the acquirer and the issuer are in different regions.

Transactions that cross the border of one country are called cross-board. For example: an acquirer is located in Latvia, an issuer in Russia. Such transactions will be interregional for Visa (regions of Visa Europe, CEMEA), and internally-regional for MasterCard (transactions between sub-regions of Western and Eastern Europe).

By the way, in the Russian Federation there is a common practice, in which case, to declare that “Visa / MasterCard are American companies. All questions to them! ". In fact, questions about Russia are solved by Russian banks participating in the IPU, as well as the regulation of the interchange fee is completely on their conscience. The banks benefit from high IF rates - they earn from each transaction.

In the countries of the European Union and Australia, lowering (regulation) IF was sought through the courts. For example, the European Commission in 2015 approved the decision to reduce the IF for MasterCard between EU members to 0.2 / 0.3% on debit / credit cards.

In Russia, the average interchange for e-commerce transactions with 3D Secure is about 1.6% . But the rates differ between payment systems. For example, MasterCard openly publishes its IF. 3D-Secure support on the side of both the issuing bank and the acquiring bank falls into the category of Full UCAF.

Fees

For each “set” of IF there is a set of commissions (fees) of the IPU for various operations. By the way, the Ministry of Railways takes a commission not only for authorization operations from an acquirer, but also for various operations from the issuer. The rates of the IPU are quite low, and the commission for authorization may be hundredths of a% of the total amount. Their distinctive feature is that the commission for authorization is fixed and depends on the amount of the amount and the number of operations. In most cases, commissions are closed, moreover, the rules of the ICS prohibit the acquirers from disclosing them to third parties.

For Russia, after the construction of the NPCS, Visa and MasterCard published their in-Russian commissions:

Visa: www.visa.com.ru/common/pdf/Visa_Payment_System_Fees_Guide_Russia.PDF
Mastercard: www.mastercard.com/ru/company/ru/_assets/pdf/Tariffs.pdf

For example, the clearing cost for an acquirer with a total monthly transaction count of less than 50 thousand for a transaction of less than 5 euro is equal to 0.0080 EUR = 0.64 RUB (at the rate of 1 EURO = 80 RUB). That is why many acquirers and issuers discourage authorizations for small amounts (less than a few rubles), since such transactions become unprofitable for them.

But if the commission for authorization within one country is one-hundredths of a% of the transaction amount, then with cross-border transactions, the IPU already imposes tangible fees. For example, a Visa interregional transaction fee may be 0.4% (the so-called cross-border fee).

At last

The rate of Internet acquiring is almost always lower in the country whose cards of banks you accept (overlapping cross-border fee, inter-regional interchanges, etc.). Moreover, if the company works with the Russian market (its counterparties are also located in Russia), and the acquiring bank in Europe, the company also loses on double currency conversion:

1. Write off RUB -> convert to EURO.
2. Convert EURO -> calculated in RUB with counterparties.

Ie, in fact, Visa / MasterCard play the role of banks, since in the first case you buy currency, and in the second you sell it.

Thank you for reading to the end, I will be glad to answer any questions.