For the past few years, new payment companies have courted retailers and merchants to circumvent or replace traditional payment channels. Now, many of these companies are shifting expectations for the interchange rates those businesses pay.
First, there is Square’s unique pricing model — a flat 2.75% for swipe payments, complete with the elimination of its previous 15-cent-per-transaction fee — designed to expand appeal among merchants.
The mobile payments company, which provides a service that allows smartphones to accept credit card swipes, still pays the same amount of interchange to card companies and financial institutions, no matter what it charges. By eliminating its 15-cent fee, Square has demonstrated a willingness to undercut competition even if it means taking a loss on some purchases.
Then there’s Iowa-based startup Dwolla. Already processing roughly $30 million to $50 million in transactions a year, it charges merchants just 25 cents per transaction, even for high dollar purchases.
“Every time a merchant gets paid with a credit card they have to give up a percentage,” founder Ben Milne, who formerly manufactured and sold speakers online, told Business Insider. “In my case, I was losing $55,000 a year to credit card companies. I felt like they were stealing from me — I was getting paid and somebody was taking money out of my pocket.”
Because funds are drawn straight from financial institution accounts, card companies are completely removed from the Dwolla payment process, lessening costs and complications from the merchant perspective.
Now, Massachusetts-based mobile game company SCVNGR has a new mobile payment service called LevelUp. This QR code-based mobile payment option charges merchants no interchange whatsoever, just a $55 monthly fee. And even that is waived for the first three months. The goal is to only charge for value generated “above the transaction,” Seth Priebatsch, “Chief Ninja” (aka founder), told The Next Web: Insider. His interchange zero philosophy argues that, through these new technologies, small businesses are about to have a much louder voice in the fees they pay.
Any potential impact of these options for consumers is yet to be seen. (Like with the Durbin Amendment, some question whether retailer cost savings will actually translate into lower prices for consumers). And there’s no doubt that existing channels still dominate the payment space, though not without challenge.
As alternative providers like LevelUp continue to expand and enhance their appeal, it is a reminder for credit unions to anticipate and prepare for any potential impact they may experience in their own payment business model.