Imagine that a gas station was so large in its local area that virtually all motorists had little or no choice but to purchase some of their gas from it.
Now imagine that this dominant gas station instituted a monthly access fee for the right to purchase gas at its stations that drivers must pay no matter how much gas they buy from that station. And then imagine that the gas station gave motorists the ability to offset the access fee, but only if they buy as much gas as possible from that station.
Would customers pay the monthly fee? They'd have to. Would anyone ever fill up at a competing gas station? Almost never. And would those competing gas stations stay in business? Not for long.
These are the issues raised by Visa's Fixed Acquirer Network Fee. The FANF is much more than simply a "fee." Rather, it is a pricing mechanism that leverages Visa's market power in credit and signature debit to effectively penalize merchants that route debit transactions to any other network. It is the latest Visa tactic aimed at subverting the debit network competition that the Durbin Amendment to the Dodd–Frank Wall Street Reform and Consumer Protection Act was designed to foster.
The FANF demonstrates that Visa's playbook remains the same. When faced with emerging threats, Visa employs anticompetitive tactics, rather than superior offerings, in order to disadvantage its competitors. As the saying goes, the more things change, the more they stay the same.
The backdrop to the FANF is as follows: With issuers being required by the Durbin Amendment to add unaffiliated networks to all Visa-branded debit cards, Visa has lost the exclusive real estate on an estimated 150-200 million debit cards. Faced with this threat to its dominance and in order to stem the anticipated migration of as much as 80% of its debit transactions to other networks, Visa reconfigured its network pricing to charge merchants a fixed network access fee.
Visa originally labeled the fee the Network Participation Fee, and then renamed it the Fixed Acquirer Network Fee to create the fiction that the fee is actually imposed on acquirers, rather than on the merchants that ultimately bear it.
The fee is fixed and, for most brick-and-mortar merchants, it is based on the number of merchant locations and the merchant's past Visa transaction volume. Put simply, the merchant pays the same FANF whether it accepts one Visa transaction per month or one million.
Since merchants are required to pay the fixed FANF regardless of the number of Visa transactions they accept, it becomes economically irrational for merchants to send debit transactions to other networks. After all, if the merchant already is paying Visa – a network it must accept to remain competitive – why pay a second time to send the transaction to a non-Visa network?
Worse, Visa is also using the FANF as a billy club, extracting Visa transaction volume commitments from merchants in exchange for a "discount" on the FANF. By forcing merchants to reach these target volumes in order to avoid the full economic brunt of the FANF, Visa reinforces and exacerbates the economic incentive (instilled by the FANF) for merchants to route debit transactions away from competing networks to Visa. At a May 27 investor conference, Visa asserted that "a substantial number of merchants" have entered into these volume-based agreements.
This is Visa's idea of competing for merchants. It imposes an estimated $1 billion to $2 billion increase on the prices for all merchants and then says to some of them, "we will give you some of your money back" if you favor our network over all others. Only entities with market power behave this way.
