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Visa FANF Fee Calculation Increase Acquirer Network

Most merchants in the U.S. are starting to repay some of the savings they realized from the Durbin amendment that became effective October 2011.  In April 2012, Visa and MasterCard implemented new fees and increased some interchange rates that will now cost most merchants anywhere from a few dollars to a few hundred thousand dollars per month. 

The most significant of all the new fees and rate changes is the introduction of Visa’s Fixed Acquirer Network Fee (FANF).  Effective for activity beginning April 1, 2012, this fee applies to the acceptance of all Visa-branded products. This fee is charged to a merchant's acquirer or credit card processor based on a merchant’s size and number of locations. Most processors have announced that they intend to pass this fee on to their merchants.

The calculation of this fee is extremely complex for large merchants with many locations, multiple MCCs, and a mix of card present and card not present sales.  It is based on a number of variables, including:

  • Number of taxpayer IDs
  • Card present vs. card not present
  • Merchant Category Codes (MCCs)
  • Number of locations
  • Visa gross monthly sales volume

Visa is offering rebates or incentives to some of the largest merchants in the U.S. to cover the cost of the FAN fee for 2012.  Therefore, it is important for merchants to estimate their FANF liability and explore potential incentives with their acquirers.  It is uncertain, and I think unlikely, that these incentives will continue on to 2013 and beyond. 

It is important for merchants to understand their liability for these fees and seek out ways to manage the increased costs.

Comments

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Hi Anand
Thanks for this article. When you say "Most merchants in the U.S. are starting to repay some of the savings" do you mean merchants are losing those savings due to the new FAN fee that seems to be VISA/MC way of reacting to the Durbin amendment?
Thanks
Len

Topic Expert
Anand Goel
Title: CEO
Company: Optimized Payments Consulting
(CEO, Optimized Payments Consulting) |

Hi Len,

Yes, Visa is implementing this fixed fee to recoup some revenue lost from the implementation of the Durbin amendment. Some analysts, that cover the Visa stock, estimate that FANF will generate $900 million in revenue per year for the company. Although Visa contends that this fee will be net neutral to their bottom line (in conjunction with some fee decreases), it is difficult to see how. Many investors have already factored in this fee to the Visa’s bottom line and have sent the stock to an all-time high.

MasterCard is also introducing a new fee called the Annual License and Registration Fee (ALRF) that becomes effective July 2012. This fee is assessed to acquirers based on their total MasterCard annual sales volume. Few acquirers have noted that this fee roughly equates to half a basis point or 0.005% of MasterCard sales volume, and that they intend to pass this fee on to their merchants.

By the way, we build a free calculator that merchants can use to estimate their FAN fee. Here's the URL - http://www.optimizedpmts.com/fanf_calculator.php

thanks,
Anand

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Anand,

Two questions, If I may...

1. Does this also affect AMEX?
2. Does this help AMEX (I'm finding more and more US merchants not taking AMEX, and most foreign non-hotel/air/car rental related not taking AMEX)?

Thanks

Topic Expert
Anand Goel
Title: CEO
Company: Optimized Payments Consulting
(CEO, Optimized Payments Consulting) |

Hi Wayne,

The Visa FAN fee does not directly affect AmEx in any way. Indirectly, I think it helps AmEx because all these new fees end up increasing the effective cost of Visa and MasterCard payments and decreasing the premium differential between AmEx and its competitors.

You are right that some merchants do not accept AmEx because on average AmEx rates are higher than Visa/MasterCard/Discover. However, merchants should really calculate and understand the rate differential between AmEx and its competitors. There are certain verticals where AmEx tends to be less expensive or on par with its peer group. I have found that some merchants are shocked to learn that AmEx is not much more expensive than other card brands. In order to come to any conclusion, merchants need to analyze their merchant statements and determine the effective cost of each card brand.

Here's an article that can help merchants calculate their effective cost - http://www.optimizedpmts.com/blog/index.php/understanding-and-managing-your-payments-effective-cost/

thanks,
Anand

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Thank you Anand.

Maybe AMEX should take your verbiage and use it as a sales tool :)

Wayne

Steven Donnelly
Title: Controller
Company: Giant Impact, LLC
(Controller, Giant Impact, LLC) |

I totally agree with AMEX not being much more expensive. When all those Interchange Fees and other numerous fees get added on to the discount rate, it gets real close to what our AMEX fee is.

Tyrone Bibee
Title: Entrepreneur
Company: Surfboards Coastal Ltd
(Entrepreneur, Surfboards Coastal Ltd) |

Hey Anand,

Great article! I've been doing some research lately to see what processor I should go with and was wondering what the difference was between what your business does as compared to what this business does?

Vergil Smith
Title: Other
Company: meetup.com
(Other, meetup.com) |

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