I've been learning about these hidden interchange fees through some consulting work I'm doing with www.unfaircreditcardfees.com. From what I've gathered, the card companies get a percentage of all card purchases as "interchange fees," and Americans paid $30 Billion (yes, with a "b") in interchange fees just last year. Its a practice that drives up the cost of all goods whether you pay by cash, credit, debit, or check, and rewards wealthy card holders at the expense of the poor. Obviously, I'm still learning, and would appreciate any insight anyone could offer.
The Credit Card Companies are For-Profit companies and they need to earn an income for providing this unsecured credit instruments. Personally, I see the benefits of using a credit card outweighs the cost for both customers and merchants alike. Without Credit Card, people will have less spending power and if the merchant does not accept that instrument, it would prevent some people from purchasing. Although I do not quite use the 'credit' element of the credit card, I find it convenient as a payment instrument when I do both Online and In-Store purchases. Carrying cash to the store is inconvenient and risky. Online transactions would be quite impossible without credit cards. So in the end, it works for me.
It looks like you need to get your information sorted. Interchange basically are the base rates from which all Visa and MasterCard fees are derived. Acquirers and sponsoring banks, etc, all mark them up to make their own profit. There is no such thing as a hidden Interchange fee because they are published and available for anyone to read. Also, Interchange only affects credit cards in all their varieties (check cards, business cards, etc.). PIN-based debit cards and checks are unaffected because they are not under the control of Visa and MasterCard. It also should be noted that Interchange doesn't affect Discover Card or American Express. Only Visa and MasterCard. And the reason Interchanges fees was in the billions is because credit cards are so popular. That number makes sense and should not be alarming.
The majority of interchange fees are paid to the bank that actually issues credit cards, and not to the processing bank, or visa / mastercard. The card issuing bank takes about 80% of the entire cost to process a credit card. Now what is really messed up is that out of all of the money they collect, about 50% of that goes back to card holders in rewards programs. So in all, card holders can be accountable for 40% of the cost of processing a transaction. Now, one could argue that consumers are paying for the cost of interchange, but consumers are the reason that the fees keep going up and are as high as they are. Now on the topic of interchange in general: Businesses pay a fee to use a phone service, the internet, cable, rent, electricity, and everything else. Why would interchange be any different than any of these services. In all, every service a business uses can be credited to them having to increase their prices. This is also the reason that retail businesses can rarely compete with online ones on price. All interchange really is, is the cost of processing a credit card. There are billions of dollars worth of electronic equipment, and some of the most secure and reliable computer networks running the banking and credit card processing systems. That equipment also costs billions just to maintain. If a business is processing with a ISO / MSP that is ripping them off, then the situation is a completely different story. But, even in this case, interchange itself doesn't change, the markup over interchange is what changes. The question also comes up about whether interchange pricing is fair. The banks own the equipment. They own the physical networks. They own the credit cards. They own everything, so why should they not be able to set their own prices? Look at the processing costs in many other countries. A base retail cost in the US is somewhere around 1.75%. In many other countries in the world, the lowest retail cost is 5% or more. Now, what I can say about interchange in the US that I don't like, is that it is far too complicated. There is over a hundred interchange levels for different types of transactions. In Canada there is something like 9. Mastercard's interchange in the US is 72 pages long, Visa's is only 4, but no easier to understand. This is something that needs to change, and changing it will help businesses understand what they are paying. Website's like unfaircreditcardfees.com and waytoohigh.com have some serious flaws in their arguments because they try to manipulate the cost of interchange into a tax on consumers, which it is not. It is a fee to use a service that is completely optional, nothing more. I hate siding in an argument with banks, but American businesses have about the lowest cost to process credit cards in the world. The system certainly needs some clean-up but it isn't flawed in its concept.
Interchange rates are set by Visa and Mastercard (which historically have been cooperatives run by the card issuers but are now becoming independent companies) but the interchange rates are not paid to Visa and Mastercard, they are paid to the card issuers (like Capital One). The theoretical reason for the interchange payments is to cover the costs of issuing and maintaining the cards. However, interchange actually makes up a pretty small (8% in capital one's case) portion of most issuers' revenue and most issuers are quite profitable just from the lending aspect of their business. Since they would be profitable (and presumably would still issue cards) without the interchange payments it can be argued that the interchange payments are unnecessary. In some countries (like Australia) the government has capped interchange rates, but it's too early to see if there are any negative impacts from that. According to this website - http://www.informed-merchant.com/articles/who-makes-money-from-my-merchant-account.html - the average merchant pays 2.57% for a $100 credit card transaction. Of that, 0.09% goes to Visa / Mastercard, 1.75% is interchange, and the rest is split between the merchant acquirer and the processor (most merchant acquirers outsource their processing to a bigger firm like FirstData). It's not as clear-cut as sites like waytoohigh make it out to be, but as a small merchant, the amount that I pay for electronic transactions does sting.
Hi, When the service has been provided or the product has been shipped, the merchant can deposit the transaction with its acuiring bank and the funds will be transferred into its merchant account. You can know more information from www(dot)merchantacquiring(dot)co(dot)uk.