Is Visa’s FANF Fair? A Deep Thought into Its Impact on Small Businesses

Since its introduction, Visa’s Fixed Acquirer Network Fee (FANF) has been controversial. Already grappling with various processing fees, small business owners have questioned whether this additional cost is fair, necessary, or even justified. While Visa positions FANF as a measure to support its vast payment network, its impact on small businesses is often negative, leading to increased operational costs and financial strain.

 

Understanding FANF in the Context of Small Businesses

FANF is a fixed fee Visa charges to acquiring banks, which is then passed down to merchants. Unlike interchange fees, which are transaction-based, FANF is levied regardless of the number of transactions a business processes. This fee structure disproportionately affects small businesses, which often have lower transaction volumes but are still required to pay the fee.

Visa determines FANF based on several factors, including the Merchant Category Code, sales channel (e-commerce vs. physical store), transaction volume, and the number of locations a business operates, for small businesses operating on tight profit margins, including a fixed cost such as FANF can be burdensome, as they do not have the high transaction volumes that larger enterprises use to absorb these fees.

 

The Impact of FANF on Small Businesses

FANF increases operational costs, making it an unavoidable financial burden on small businesses. Since the fee is fixed and independent of transaction volume, it disproportionately affects low-volume merchants who may not have the sales to justify these additional expenses.

Seasonal businesses are particularly vulnerable because they must continue to pay the fee even during months of low or no revenue. This structure creates financial strain and makes it harder for small businesses to remain sustainable. FANF represents an additional hurdle for startups and new companies, adding to their operational expenses even before establishing a stable revenue stream. Specific industries such as hospitality, small retail, and niche e-commerce businesses bear the brunt of this fee structure. These businesses often have lower transaction counts but still pay the same base rate as more prominent merchants, which fails to account for the diverse nature of small enterprises.

 

The Justification of FANF: Visa’s Perspective

Visa defends FANF as necessary for maintaining and improving its payment network. It argues that the fee contributes to security enhancements, fraud prevention measures, and payment network infrastructure improvements. From Visa’s standpoint, FANF is a cost-sharing mechanism that ensures all merchants contribute to the network’s upkeep. However, critics argue that most benefits favor large enterprises while small businesses shoulder an unfair portion of the cost.

 

Alternatives to FANF: Are There Better Models?

One possible alternative is a fee structure tied to transaction volume or revenue. This would allow small businesses with lower transaction counts to pay proportionally less while ensuring that larger enterprises contribute more. Another option is a tiered FANF model, where companies in different revenue brackets pay fees that better reflect their transaction volume and sales figures. This would make the fee structure more equitable and reduce the burden on small businesses. A reasonable alternative could be eliminating FANF for businesses generating less than a specific revenue threshold. This would protect small businesses while ensuring that larger enterprises contribute to network maintenance.

 

Strategies for Small Businesses to Mitigate FANF Costs

Since Visa will unlikely eliminate FANF anytime soon, small businesses must explore ways to minimize its financial impact. One approach is negotiating with payment processors, as some merchant service providers offer lower-cost processing solutions or bundle fees to reduce the practical burden of FANF. Alternative payment methods, such as ACH transfers, mobile wallets, or cash, can help minimize Visa-related processing fees. Small businesses can also consider strategic pricing adjustments to offset the additional processing costs without significantly impacting customer retention. Advocacy efforts by industry associations and small business groups may also help push for fairer fee structures, urging Visa and regulators to reconsider FANF’s impact on small merchants.

 

The Legal and Regulatory Perspective

Regulators in various countries have examined Visa’s fee structures, questioning whether they create an unfair marketplace for small businesses. Antitrust concerns have been raised, with critics arguing that FANF disproportionately benefits Visa by making it harder for small businesses to compete. Transparency issues have also surfaced, as many small business owners claim they were unaware of FANF when signing up for merchant services. Regulatory pressure in some regions has reduced transaction fees for small businesses, and similar scrutiny could extend to FANF. Increased regulatory oversight may push Visa to reconsider its fee model or introduce exemptions for smaller merchants.

 

The Future of FANF: Will Visa Make Changes?

Growing dissatisfaction with FANF could push Visa to reassess its approach, especially if regulators intervene. Possible future developments include adjustments to FANF’s structure to make it more equitable, greater transparency in merchant agreements regarding fee structures, and increased competition from alternative payment providers, which could force Visa to reconsider its fee model.

 

Is FANF Fair for Small Businesses?

The fairness of FANF largely depends on perspective. From Visa’s standpoint, it is a necessary fee for maintaining a secure and efficient payment network. However, FANF is an additional financial burden for small businesses that disproportionately affects them compared to larger enterprises.

While Visa is unlikely to eliminate FANF, small business owners can mitigate its impact, including negotiating with processors, exploring alternative payment options, and advocating for policy changes. If Visa truly wants to support small businesses, it should consider revising FANF to reflect better the realities of different business sizes and transaction volumes. FANF remains a controversial aspect of Visa’s fee structure, with small businesses continuing to bear the brunt of its impact. The question remains: Will Visa listen to small merchants, or will market pressures force a change in the future?