Interchange and network fees levied for accepting credit cards are the one factor that dwarfs all others when insurers start digging into the cost of getting paid.
Debit card fees in the United States are regulated and capped under the Durbin Amendment. Credit card fees are not capped, and recently, they have risen rapidly. It’s been reported that U.S. merchants paid an estimated $93 billion in Visa and Mastercard credit card fees in 2022, up from about $33 billion 10 years before.1
As a result, many insurers are now implementing surcharges, also known as service fees, to pass these costs directly to customers and businesses. This cost-saving strategy encourages using less expensive payment methods such as debit cards and ACH.
“At ACI Worldwide, we are leaders in the payments industry. We understand the complexities insurers face with surcharging. By leveraging our expertise, insurance billers can implement surcharging effectively and compliantly, saving millions in interchange fees, while offering transparent payment choices to consumers. Our solutions help reduce costs and enhance customer satisfaction by promoting lower-cost payment methods like debit cards and ACH.” — Ron Shultz, EVP and GM, ACI Speedpay, ACI Worldwide.
This is well timed. The most recent ACI Speedpay Pulse research reveals that consumers favor debit cards for one-time bill payments, and that younger generations show a stronger preference for debit cards versus older generations.
But some insurers are still hesitating on whether to introduce surcharging due to a combination of misunderstandings about compliance and the conventional—but off-base—wisdom that surcharging leads to customer attrition. There is little evidence of customer attrition caused by a service fee – mainly because they’re used to paying them in nearly every other industry, including restaurants, car dealerships, utilities, the IRS, and financial institutions.
A 100% compliant way to save millions of dollars
This hesitation is costing insurers billions of dollars. In just one example, we identified an opportunity for a customer to save $1.8 million in network and interchange fees on the nearly $47 million in credit card payments they accepted each year.2 Any compliance concerns around surcharging for credit card payments can be dealt with relatively quickly because ACI’s solution is 100% compliant.
Visa, Mastercard, and regulatory bodies have rules that require service fees to be passed directly to consumers without markup and limited to 3% of the total transaction. This approach makes surcharging easier to comply with and fairer than the flat-rate convenience fees used in many industries to offset card costs.
More value for customers
Based on our experience, concerns that customers will abandon insurers who implement surcharging are generally unfounded. Surcharging is a familiar practice for consumers and businesses, frequently seen in utilities, banks, government agencies such as the IRS, educational institutions, car dealerships, and even restaurants. Customers we’ve worked with to introduce surcharging as part of wider strategic interchange management programs universally report seeing zero attrition rates among their customer bases.
Relieved of high-cost credit card interchange fees, insurers can channel their funds into their core operations, delivering greater value and enhancing customer experiences. Numerous insurers have promoted more economical payment methods successfully by pairing surcharging with attractive discounts for clients utilizing debit cards or ACH. Consequently, reduced overheads enable them to offer more affordable policies.
Surcharging made simple
Surcharging can be integrated seamlessly and compliantly into insurers’ existing payment systems. Technically straightforward automatic lookups can determine customers’ payment methods and apply surcharges according to custom criteria, such as the credit card type, whether it is a business or consumer card – or the customer’s state of residence. This enables insurers to maintain complete control over the implementation of surcharging. Ultimately, the right partner with the right experience and technology can help insurers apply surcharging consistently, fairly, and compliantly and can de-scope network and interchange fees from their total cost of payments for good.
Now is the ideal time to gain significant cost savings by implementing the process into your payments modernization journey.
Robert has over 20 years of progressive experience in the Fintech & Healthcare industries, specializing in payments, core system consolidation, business development, account management, and public speaking. His expertise spans across all facets of enterprise payment solutions including C2C, B2C, B2B, C2B, and P2P, with a majority of his professional career working to improve CX while reducing costs with the largest insurers in the world.
Chris is a payments industry executive with over two decades of experience in payments, fintech, and IT services. Currently, he leads ACI Speedpay’s Customer Success team, serving biller clients in the insurance, higher education, and government verticals. Previously, Chris was the Director of Customer Success for ACI’s merchant group. Before joining ACI, he held progressively senior roles at First Data Corporation and the International Dairy Queen Corporation. Chris resides in suburban Minneapolis with his wife and two children.
Robert has over 20 years of progressive experience in the Fintech & Healthcare industries, specializing in payments, core system consolidation, business development, account management, and public speaking. His expertise spans across all facets of enterprise payment solutions including C2C, B2C, B2B, C2B, and P2P, with a majority of his professional career working to improve CX while reducing costs with the largest insurers in the world.
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