Understanding E-Commerce Pricing: The pros and cons of IC++

Editor's Notes

• #4: Comments Requirement for unbundled pricing Aim is to create long-term value for your e-commerce business New markets considerations: some alternative payments are indeed a lot more competitive than all the fees associated with a cross border transaction Potentially introduce ongoing pricing changes?
• #5: Comments 4 party schemes are the main targets of the Interchange Fee Regulation (IFR) While I am going to try to be as thorough as possible during this presentation, I am nonetheless forced to make a few simplifications if I don’t want the whole room to fall asleep Here at Checkout.com we have pricing experts therefore if you have specific questions, feel free to come to the stand and we will do our best to address these
• #6: Comments IC = The commission that the issuer of the card gets, each time you pay with the card, in exchange for issuing the card to the cardholder 1st + = Scheme fees = Fees charged by Visa/MC to the acquirer and hence to the merchant for their scheme management activities [Note: as opposed to Processing activities which should be separated as per the regulation] 2nd + = Premium of your acquirer / service provider to cover his other processing and running costs I will give you a bit more background on each of these 3 across the next few slides
• #7: Comments Interchange helps maximize the value delivered to all stakeholders (Visa/MC tag line) Potential joke on MC being more “transparent” than Visa? TBC Often when you read merchant agreements or discuss with a sales executive you end up hearing the terminology “Discount Rate” The discount rate is essentially a blended rate approach to fees, which combines interchange, scheme fees and acquirer/PSP premium. When you negotiate an IC++ pricing there is no such thing as “discount rate”
• #8: Comments Deferred debit = essentially a credit card MC has many more categories of cards: Gold, Platinum, World/World Black edition, World Signia… Geography: usually merchant/ issuer country applies. However, for Visa: From 1 September 2016, for consumer card transactions at merchant outlets within the EEA, domestic interchange fees will no longer apply when the merchant and its acquirer are located in different EEA countries. Under these circumstances, for a Visa Europe transaction, regardless of the location of the issuer, intra Visa Europe EEA Multi-lateral Interchange Fees (MIFs) will apply by default Visa and MC have their own definition of the Europe region, which differs to an extent Visa regions: Domestic, Intra-EEA, Intra-Europe non-EEA, International MC regions: Domestic, Intra-EEA, Intra-Western, Intra-Eastern, Intra-European, International Industry: other examples: fuel and parkings in Switzerland, quite a few in Spain, etc. For EEA transactions, thanks to same people that have make IC++ compulsory IC rates are very simple: 0.2% for immediate debit and 0.3% for deferred debit and credit transactions as long as its a consumer card (corporate cards would vary, up to about 2%) As soon as you enter the realm of cross border, then the matrix becomes a lot more complex with fees that range from c. 0.5% for European transaction (typically EEA to non EEA) up to ~2.0% for an international transaction with a super premium card or a corporate card, and even higher for Purchasing cards for MC (2.25%) Obviously all this is pre-scheme fees….
• #9: Comments Deferred debit = essentially a credit card MC has many more categories of cards: Gold, Platinum, World/World Black edition, World Signia… Geography: usually merchant/ issuer country applies. However, for Visa: From 1 September 2016, for consumer card transactions at merchant outlets within the EEA, domestic interchange fees will no longer apply when the merchant and its acquirer are located in different EEA countries. Under these circumstances, for a Visa Europe transaction, regardless of the location of the issuer, intra Visa Europe EEA Multi-lateral Interchange Fees (MIFs) will apply by default Visa and MC have their own definition of the Europe region, which differs to an extent Visa regions: Domestic, Intra-EEA, Intra-Europe non-EEA, International MC regions: Domestic, Intra-EEA, Intra-Western, Intra-Eastern, Intra-European, International Industry: other examples: fuel and parkings in Switzerland, quite a few in Spain, etc. For EEA transactions, thanks to same people that have make IC++ compulsory IC rates are very simple: 0.2% for immediate debit and 0.3% for deferred debit and credit transactions as long as its a consumer card (corporate cards would vary, up to about 2%) As soon as you enter the realm of cross border, then the matrix becomes a lot more complex with fees that range from c. 0.5% for European transaction (typically EEA to non EEA) up to ~2.0% for an international transaction with a super premium card or a corporate card, and even higher for Purchasing cards for MC (2.25%) Obviously all this is pre-scheme fees….
• #10: Comments Fees linked to the overall transaction volume: those can depend on the region of the transaction (Domestic vs. European vs. International) Other fees/ misc: development/ innovation/ marketing funds from MC, currency surcharges for MC (if settled in a difference currency than the processing currency) Potentially mention fraud/ Chargebacks, although those are technically not part of the textbook definition of ”Scheme fees” Note that there are 100s of fees and many pertain to operating an acquirer (data usage, project fees, BIN fees, etc…) so its important to make sure that you are not charged for these. What are rebates? You might have heard about this but sadly it is something of the past for the most part. As VISA Europe is officially cancelling them from this Saturday October 1st. This said for full disclosure, rebates were a portion of the fees, which VISA was refunding to Acquirers every quarter (15 to 30% of all fees paid) based on overall volume/transactions processed
• #11: Comments Potentially mention verbally reputation risk to justify the CB fee, however I would not spell it out on slide
• #12: Comments Even within Europe, overall costs vary greatly depending on country or type of transaction
• #13: Comments Note for GP: As we discussed in the past“Scheme fees” can be a bit inacurrate here. For Visa for example, the international acquiring / international ecom are not in what Visa calls ”Scheme” Refer to Dubai/ Singapore, and how local payments can make a lot of sense for international expansion in addition to cards ENETS pricing in SG: SGD 1.20 fixed for SGD transactions
• #14: Comments Pros: Its transparent, you know exactly who charges you what. You only pay what’s relevant for your type of transaction => 1.5% in the UK today: you are getting ripped off You can better negotiate when you move from one acquire to another (assuming you understand the other fees especially FX and transaction) Cons: You won’t know your exact processing cost until you actually process, as it is linked to your card mix, so you cannot model/anticipate It makes it easier for your acquirer to push to you all the scheme fee changes It is sometimes difficult to fully understand all the constituent parts that drive your processing costs => Overall more complex to track and reconcile