The world’s most poorly kept secret, a sweeping overhaul of the interchange network fee schedule, has been disclosed by Visa Inc.
A headline announcement to the media is that certain interchange fees, such as transaction costs associated with certain real estate transactions and a couple of other notable big ticket items, will undergo interchange charge reductions. The footnote items, which are what investors should always read, before the headlines, are that almost every other class of transaction on the interchange network are set increase.
Visa is careful to note that the overall fee schedule pricing initiatives are modest, and that the per swipe transaction charge increase may only be a couple of cents per swipe. That belies the profit motive on what is a business driven by incredible volumes. In aggregate, such a fee hike may generate incremental revenue in the order of about $500 million for Visa, over a full year of the new fee schedule.
Visa and Mastercard operate as a fairly tight oligopoly. When one company raises prices, an opportunity is created for another market participant to roll out similar fee increases, on a largely risk free basis. It is, to my thinking, a fair accompli that Mastercard is likely in the latter stages of finalizing their updated fee schedule for the 2020 year.