In a 2020 study by U.S. Bank, 22% of consumers said they had set up automatic recurring payments for their utility bills in the previous year. Of the consumers who did use auto-payments, 46% used their credit cards.
Auto-payments help reduce accidental missed payments. This makes them great for telecommunications companies — at least in theory. Unfortunately, changes made by some of America’s biggest telecoms over the past few years might make credit card auto-payments less ideal.
For instance, T-Mobile offers auto-payers $5 off per line, up to eight lines, for a potential total discount of $40/month. That discount now ceases to exist for credit card or digital wallet payments. As of October 2023, AT&T cut its auto-pay discount from $10 per eligible line to $5 — better than nothing, but still a hefty penalty for paying with the wrong card.
These changes bring the two giants in line with Verizon, which has limited discounts for credit card payments since at least 2017. It also follows a recent attempt by Canadian telecom Telus to instate a 1.5% fee on all credit card payments — a move that drew criticism from regulators and was ultimately scrapped by the company.
Many consumers prefer to use credit cards for auto-payments because of their rewards programs; by using credit cards to pay, they can earn a small portion of their cash back. Today, telecoms are trying to push incentives in the opposite direction. But why are so many telecoms now turning their backs on credit card payments? And what does this mean for the payments industry?
Why the Hostility Towards Credit Card Payments?
Ultimately, the issue for telecoms and other utility companies is credit card fees. Telecoms often pay transaction fees of around 1.5%. This aligns with what Telus tried to pass on to its customers. By comparison, U.S. debit card payments are capped at 21 cents and 0.05% of the transaction for issuers over $10 billion in assets.
With the average monthly phone bill in the U.S. at $157/month, it’s clear why telecoms are trying to incentivize customers to use debit or ACH payments. A $157 debit payment would cost 29 cents in fees. Conversely, a credit card payment for the same amount would cost $2.36 in fees—eight times more.
While most consumers might laugh at the idea of a gigantic telecom worrying about an extra $2 in fees on the average bill, scale matters. For instance, AT&T has over 200 million wireless subscribers, representing a substantial number of monthly credit card payments. Those extra $2 in fees could cost the company millions in monthly costs.
With $21.5 billion in revenue from its mobile business alone, AT&T is at no risk of going out of business over fees. However, if the company can convince subscribers to switch their auto-payments to debit or ACH, it stands to generate much higher revenue.
Credit Card Fees Under the Microscope
The same fees the big telecoms are trying to avoid are also an issue for small merchants across the United States. With card credit card swipe fees currently unregulated and uncapped, U.S. merchants pay some of the highest in the world — far higher than their peers in places like Europe and the United Kingdom. Unsurprisingly, that fact has caught the eye of lawmakers eager to help out the little guy.
Debit cards are cheaper to accept than credit cards due to a cap regulators put in place with the passage of the Durbin Amendment of the Dodd-Frank Act. Today, some of the same lawmakers are looking to enact similar legislation around credit card fees.
The Credit Card Competition Act (CCCA) was first introduced in 2022 with bipartisan support. It failed to go to a vote before the new session of Congress was sworn in but has been reintroduced with even wider support. If passed, it will force big card issuers to offer at least one additional network on every credit card outside of the top two — Visa and Mastercard.
This legislation would not impose a hard fee cap. However, by allowing merchants to choose which network a transaction is processed through, CCCA backers hope that fees will naturally shrink as card companies are forced into more direct competition. However, issuers are not going down without a fight, with many garnering consumer support through movements like Hands Off My Rewards.
What It All Means for Payment Providers
Merchants and regulators alike are frustrated with the high credit card fees in the United States. The writing is on the wall. Credit swipe fees in the U.S. will eventually fall more in line with the rest of the world; the question is when.
Payment providers like independent sales organizations (ISOs), payment facilitators (PayFacs) and software platforms embedding payments will need to start planning for a potential future in which fees (and residuals) drop. With transaction fees down, payment professionals will need to do two things to maintain profitability:
- Open more protected revenue channels through value-added services
- Run a leaner, more efficient operation
NMI offers a way to do both.
NMI’s embedded payments solutions offer merchant services providers everything they need to run more streamlined, cost-efficient businesses while simultaneously delivering a best-in-class merchant experience.
Best of all, it’s a turnkey solution that enables payment providers to get up and running quickly and easily. The ability to build a customized solution instead of being forced into a one-size-fits-all platform is key to minimizing both costs and complexity.
To learn more about NMI’s embedded payments solutions, value-added extensions and merchant relationship management suite, reach out to a member of our team today.
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