It’s Time to Discuss Alternate Payment Methods for High-Risk Merchants. Credit cards are a great way for high-risk merchants like you to accept payments. Among other things, they help legitimize your business, increase sales, and allow you to keep up with competitors.
However—especially in the case of emergencies—there are alternative methods you can employ if you wish to diversify the payments you accept.
As you’ll find out in this article, there’s an important lesson to take from Amazon’s current dispute with Visa. The multinational is currently not accepting their credit cards as payment because of the “high fees Visa charges for processing credit card transactions.”
However, they still accept debit cards from Visa, credit cards from other card companies, and other payment methods.
In this article, we’ll review:
- Amazon’s Visa battle
- Visa’s dispute with Kroger
- Other Brands and Card Companies
- Alternative Payment Methods
- ACH transfers
- Pinless Debit
- How L3 Payments can help you
Without further ado, let’s dive in!
Amazon’s Visa Battle
In October 2021, in the aftermath of Brexit, Visa increased their transactional interchange fees between the UK and EU from 0.3% to 1.5%.
As a result, Amazon decided to stop accepting Visa credit card payments on January 19, 2022. Even though they’ll still be accepting debit cards, this will affect their UK customers.
Visa claimed Amazon’s decision not to accept them was restrictive to customer choice. Comparatively, Amazon claimed that Visa made it difficult for businesses to be price competitive, stating that the cost of credit card transactions “continues to be an obstacle for businesses striving to provide the best prices for customers.”
One lesson from this is that the larger retailers may be gaining an advantage on card companies, especially due to the sheer number of options they have to accept payments.
However, in an interview with Reuters, Visa’s CFO, Vasant Prabhu, explained that he expects to resolve the dispute with Amazon.
Amazon could be involved in a ploy to get Visa to lower its rates, not dissimilar to Walmart Inc’s unit in Canada disputing with Visa in 2016—stating that it would no longer accept its credit cards—and eventually, they reached an agreement.
But it’s not just the UK that will be affected by Visa’s fee changes. Visa was going to increase their fees in the US in 2021 but decided to wait until April 2022 because of the COVID-19 pandemic.
Visa’s dispute with Kroger
Visa’s dispute with Amazon was not the first—nor will it be the last—for the card company. For example, Smith’s Food and Drug, a chain owned by Kroger, stated they would no longer accept Visa’s credit cards on March 1, 2019, and that they’d stop by April 3, 2019.
Their reasons for no longer accepting Visa’s credit cards were similar to Amazon’s, stating that it was because of the “excessive interchange and network fees that Visa and its issuing banks charge retailers.” It further argued that Visa had higher fees than any of the other card networks.
However, in October 2019, Smith’s Food and Drug updated a banner on their website, to state they now took Visa credit cards again.
Thes types of examples show that there are potential disputes between businesses and the card companies. Although they typically reach resolutions, it has been important to these businesses to accept different payment types and not just rely on one, otherwise, they’d have a lot less bargaining power.
Other Brands and Card Companies
According to PYMNTS.com, there are plenty of other brands who are in dispute with payment companies due to transaction fees. These include Superdry, AllSaints, and Levis. Each of these companies are all hoping for compensation, especially because higher fees from card companies are anti-competition.
Each of these brands are following in Amazon’s footsteps. The question is, how many more brands will do the same?
The UK supreme court had stated that EU and UK competition laws had been breached by both Visa and Mastercard in a dispute with Sainsbury’s, the second-largest supermarket chain in the UK. This was a result of interchange fees, which had been charged to the retailer for every customer transaction.
According to Competition Policy International, the ruling found that—because the interchange fee was set between banks and card companies and not by market competitions—it was possible for retailers to reduce the charge by negotiating with their banks.
Although it’s no shock that companies are deciding to sue Visa and Mastercard, some of these settlements may happen outside of court. The big problem with card payment costs is that businesses won’t be able to provide lower prices for customers.
Alternative Payment Methods
So, we’ve explored some of the issues that certain companies have taken up with Visa. As a result, these companies use alternative payment methods.
However, it must be noted that companies tend to seek resolution with card companies like Visa, probably because accepting credit cards is one of the best payment methods for businesses to accept.
We’ll now review:
- ACH Transfers, and
- Pinless Debit
ACH Transfers
ACH stands for “Automated Clearing House” and is run by the “National Automated Clearing House Association” (Nacha).
ACH transfers allow you to move money between bank accounts in the US through the ACH network, which means it does not have to go through card networks like Mastercard or Visa. As it is an exclusively internal transfer company, you can only make transactions domestically and not internationally.
There are two types of transfers that you can consult using ACH:
- ACH credits, and
- ACH debits.
The main difference between these two is how funds are transferred between the accounts. ACH credits refer to when funds are put into an account. ACH debits are when funds are taken out of an account.
Using ACH transfers comes with pros and cons.
Let’s explore some of these.
Pros
- The cost stays low because transactions don’t need to go through the card networks
- Often free for customers
- Retention is higher because there are no expiry dates like you get with credit cards. Often useful for recurring payments
- Anyone with a US bank account can make ACH payments
- Transaction info known faster—you’ll know whether a payment bounced or was accepted
Cons
- In contrast to credit card payments—which are processed in real-time—ACH transactions can take up to three days to fully clear the customer bank (although they can sometimes be faster). This can be a huge headache if you need the funds quickly
- ACH is only domestically available in the US—no international transfers can go through with this payment method
- ACH payments are processed during business days, so they won’t process on Saturdays or Sundays
Know that ACH providers all charge a fee, which can vary. Some charge a flat fee, others charge a percentage fee, and some charge both. As a high-risk merchant, you should expect to pay more than your lower-risk counterparts.
Pinless Debit
Pinless debit is pretty much exactly as it sounds: a debit card transaction that doesn't require the cardholder to enter a PIN for verification. Pins are not typically used on online purchases, and they’re not always used in stores either.
In the US, merchants see larger card fees online (card-not-present) than in store (card present).
Interestingly, a financial institution makes more money from a card payment that goes through a signature process rather than a pin. This is because the risk of fraud is higher from a signature. Furthermore, a pinless debit transaction is treated the same as a pinned transaction.
Pinless debit cannot be used for large transactions. They are typically capped at $50, though some card companies allow for payments to be accepted at up to $100.
The problem for merchants with pinless debit is that every important part of the payments system must participate. And, because there are plenty of issuers not allowing the pinless function, not all customers have this option.
Furthermore, you’ll be unlikely to have the pinless function go through successfully more than 50% of the time due to limited adoption by the debit card networks. However, there’s still an opportunity to first attempt the transaction on the debit network and—if declined—reroute through your credit card merchant account.
Although pinless debit may take off, it appears to be as reliable as credit cards as of yet.
How L3 Payments Can Help You
Now we know about the battle between Visa and Amazon in the UK regarding Visa’s rising fees. We’ve also looked at a couple of alternative payment solutions that you might want to check out and use in your business.
Feel free to reach out to one of our payments experts who would be delighted to help you with any inquiries or concerns you have!
