Insights Magazine from CMSPI
Page 11 | November 2021
While card processing fees differ between merchants, one key threat to transaction productivity comes from ‘premium’ processing services designed to boost approval rates. Merchants willing to pay a premium should take caution:
The premium approval-boosting product is the result of a broken system, not the solution to it. One partner can’t address challenges throughout the supply chain.
PROCESSOR
Figure 2 shows CMSPI analysis of the approval rate performance of different processors for a sample of merchants. Even if a merchant pays for ancillary services, both processor and merchant may be losing out relative to their competitors without cross-processor industry benchmarks.
Figure 2. Approval Rate by Processor
0.30%
Since 2009, the major card networks have announced, introduced or increased over 40 network fees in the United States. Fees are not only increasing in size and number but are also increasing in complexity. Different payment types across different channels with varying authentication methods and charging structures make understanding fee increases a resource-intensive challenge. This pattern of increases to both network fees and unregulated interchange fees is visible globally, particularly following interchange regulation. (Figure 3)
0.25%
0.20%
0.15%
NETWORK/ ISSUER
0.10%
0.05%
0.00%
Figure 3. Network Fees After Regulation
-0.05%
0
15
Years Since Interchange Regulation
US
EUR
AUS
90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40%
When exploring the adoption of an alternative payment method like buy
now, pay later, the two key considerations for merchants are the trade-off between increased costs and incremental sales, and the difference between increased conversions and increased approvals. While an APM may draw new customers, new revenues are only achieved if the transaction is approved. APMs can vary in approval rate (Figure 4), and therefore increased conversions don’t necessarily translate to increased sales.
APMS
Figure 4. Sample
Dataset - BNPL Approval Rates
May 20
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BNPL
All Other Payment Methods
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