A time limit is in place, but once that happens, the revised interchange fees set by Visa can go a long way in creating a new wave of digital commerce, where payments are increasingly made through digital wallets.
To recap: Interchange fees are set by payment networks – Visa among them – and are the fees that merchants pay card-issuing banks when customers pay with credit and debit cards to complete transactions ( and in the simplest explanation, the issuing bank collects the exchange from the acquiring bank).
In terms of mechanics, the interchange commission is calculated as a percentage of the sale price of a good or service, increased by a fixed amount.
These interchange fees are updated, usually a few times a year. And generally, they tend to increase. But with the economic uproar caused by the pandemic, the latest round of revisions has been pushed back to April 2022.
In the scores of the payment categories, there remains a reduction in interchange fees on transactions secured by tokenization of the network. JP Morgan said in a recent Note that the reduction of 10 basis points may not translate into a true reduction of that amount, as the rates of non-tokenized transactions will increase. Depending on the merchant, vertical and payment mix, the impact of interchange fees on the bottom line may vary.
But, according to JP Morgan, “traders who do not take advantage of the digital wallet incentive will undoubtedly leave money on the table.”
In other words: 10 basis points might seem like a small step for ecommerce, but it can be a giant leap for digital wallets.
As merchants revamp and re-evaluate their digital strategies, they will also be looking for new ways to save money and therefore look for ways to get consumers to use their digital wallets when they pay.
The appeal of tokenization and digital wallets is expected to extend far beyond margin considerations. In March, Visa issued its 2 billionth token since the launch of Visa Token Service in 2014.
In an interview with Karen Webster of PYMNTS, Ansar Ansari, then Senior Vice President of Product and Digital Solutions, and Alan johnson, then vice president of digital products and solutions at Visa, said the long-term goal is to extend consumer credential security beyond Visa cards. Traders saw their conversion rates improve by an average of 3.2 percentage points – and some saw gains of around 6 to 7 percentage points.
This is because at the most basic level, a simpler verification experience results in higher buyer conversions, fewer false positives, and a more streamlined checkout process.
Visa’s goals are twofold for tokenization, Ansari said: “To ensure that we secure credentials and to ensure that the consumer experience is as good as possible. “
As he noted in this interview, for a hypothetical eTailer that achieved $ 100 billion in annual sales, a 1.5% incremental increase in sales could represent an increase of $ 1.5 billion, simply due to higher authorization rates for transactions that leverage tokenized credentials on file. .