For the past several years, the acquiring industry has been characterized by intense price competition. A recent survey conducted by First Annapolis confirms this trend has become more prevalent during the past two years. Although median price ranges for certain unbundled fees have not changed, fees have generally converged toward the median ranges. In other words, more acquirers are charging what their competitors are charging for unbundled fees.
V/MC Transaction Fee Chart
First Annapolis surveyed 37 acquirers that generated 65% of the industry’s volume in 2000. For the sake of simplicity, we asked for list prices for small and regional merchants (even though we realize list prices are often used as a starting point for negotiations with merchants). The participants indicated within which ranges their fees for 13 various unbundled items fell. After tabulating the results, we identified the fees from the study that were also included in our 1999 pricing study: Visa/MasterCard fees, AMEX transactions fees, statement fees, annual fees, and chargeback fees. We then compared the results from both studies.
The most commonly charged price range for Visa/MasterCard transaction fees and for AMEX transaction fees was $.10 to $.25. The percentage of participants in this range was 56% for both fees types, an increase of 17% and 14%, respectively.
AMEX Transaction Fee Chart
It should be noted, however, that percentage of acquirers that do not use these transaction fees also rose. This is potentially significant because except for annual fees, we did not see increases in the “do not use” responses for the other fees.
We believe that transaction fees might become key unbundled pricing elements to merchants in the future. Going forward, acquirers should monitor how their competitors treat transactions fees.
We found dramatic increases in the percentage of participants charging the median ranges for both statement fees and chargeback fees. The most commonly charged fee for statements was $5 to $10. The percentage of participants in this range increased 27% to 70%. The most commonly charged fee for chargebacks was $10 to $20. The percentage of participants in this range was 76%, an increase of 34%. The market appears to be dictating the prices that acquirers charge for these fees.
Statement Fee Chart
The one fee that showed no significant price convergence was the annual fee. The percentage of participants that do not charge annual fees rose 2%, to 70%. The percentage of participants charging $25 to $50 and over $50 also rose slightly. The only decline since 1999 was for merchants charging an annual fee less than $25. Annual fees will remain a sensitive subject for unbundled merchants. Unless the merchant is unattractive for some reason (e.g., high risk), acquirers should not expect to collect an annual fee.
Annual Fee Chart
If prices have not gone down, why do we suggest that price competition has been prevalent during the past two years? The price convergence of unbundled fees during this period suggests that the market dictates pricing. Although levels of sophistication vary, merchants generally are aware of what they should expect to pay for unbundled fees. Acquirers cannot approach merchants with fees that are outlandish by industry standards. It is imperative that acquirers know what their competitors are charging.
Chargeback Fee Chart
Our study also suggests that using price as a source of differentiation will be challenging in the future. This underscores the importance of segmentation strategies. Successful acquirers will respond by developing product and sales strategies around key target markets with attractive revenue characteristics and sustainable value propositions. Those that do not will find it difficult to compete with the larger players with lower unit costs.