Visa (V) and MasterCard (MA) are planning to raise the fees they charge merchants for debit transactions to 23 cents, which could cause “a merchant revolt,” writes Janney Capital Markets analyst Thomas McCrohan in a note.
Banks and card processors like Visa and Mastercard have been looking for ways to make up for a government amendment that put a limit on the allowed fees they can charge to merchants who use their swipe machines.
But McCrohan thinks that a move to raise fees on small purchases could cause a big backlash by merchants. Merchants currently pay about 8 cents on a $2 cup of coffee; raising that to 23 cents, would seriously eat into profit margins.
“Increasing this to 23 cents per transaction will kill the economics for small ticket debit purchases and influence a shift back to credit cards. It will almost certainly lead to a merchant revolt against the card networks,” McCrohan writes.
If a pricing change goes through, it could shake up the entire payment model for many merchants and some large corporations, McCrohan argues.
“[T]his pricing change demonstrates the risk to small ticket merchants that accept debit cards. Self-service kiosks, such as DVD rentals, benefit from debit card acceptance/usage and will need to navigate a draconian price increase without alienating customers and possibly lead to broken business models. It also risks alienating important merchant partners, such as Starbucks (SBUX), who have been major payment innovators. These operators will be violently opposed to this price change, stall investments in NFC acceptance (mobile), and re-inforce merchants’ view that the networks are not friends of merchants.”
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