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Short Changing Retailers

Mar 1, 2007

A recent report serves to confirm retailers' claims that the interchange fees Visa and MasterCard charge for card acceptance are far higher than the benefits these merchants receive. Interchange is the percentage of each transaction that a Visa or MasterCard credit card issuing bank collects from a merchant every time the bank's credit or debit card is used for a purchase.

The fee varies with type of merchant, transaction, and card, but averages about two percent of the sale. Online retailers typically pay the highest rate because their transactions are considered more vulnerable to fraud.

But the bulk of the interchange is used for purposes that don't benefit retailers, according to the report from Diamond Management & Technology Consultants. The cost of processing transactions, which is one of the original reasons for interchange, has dropped to only 13 percent of total interchange cost, the report says.

Other costs covered by interchange are card issuer reward programs, which account for 44 percent; issuer transaction costs and profit margin, 35 percent; network servicing, four percent; network brand, three percent, and network rewards, one percent. Those programs benefit the financial institutions that issue the cards and the bank card networks, but offer little value to retailers, Diamond says.

"This report corroborates the message that merchants have communicated to lawmakers over the past year: that interchange fees are far, far higher than the actual benefits delivered to both merchants and the vast majority of consumers," says Mallory Duncan, chairman of the Merchant Payments Coalition and general counsel of the National Retail Federation. The coalition represents about 20 trade associations representing online retailers and other businesses that accept debit and credit cards.

Topic: Wholesale News

Related Articles: credit cards 

Article ID: 99

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