Visa MasterCard Discovery

Card issuers and merchants disagree over swipe fees

[Monday, October 4th, 2010]

The customer is not necessarily the king all the time and sometimes he or she is just a pawn. The disagreement over the so called fees for swipe between credit card issuers and merchants is now hitting the peak. Both sides, the merchants and the credit card customers insist that they are on the customers` side trying to fight for their best interests. However, what is at stake is billions of dollars in swipe fees which is also known as an interchange fees. Contrary to what most people believe MasterCard and Visa don`t issue credit cards but run networks which process the transactions when credit card customers pay the merchants using the credit cards. However, this service comes at a cost which is paid in quite a complicated way.

Visa and MasterCard don`t get a direct commission. Instead they make money through deals with the banks and the credit unions which give away these credit cards. So on one side is these payment processors as well credit card companies who think that the plastic enhances sales and hence should be paid for. Merchants on the other side believe that they pay a lot of money and hence should be allowed to influence the customer towards payment options which will cost them less money.

Under recent regulations, the merchants can set a minimum limit for the credit card usage. It remains to be seen how many merchants will actually use this option. Smaller stores and corner hotels might have their own minimums. Meanwhile MasterCard and Visa have agreed to allow merchants to attract customers with incentives to use cards from specific networks.

A retailer, under this agreement can offer customers a discount if they pay with a Discover credit card, which generally tends to have a lower interchange fees. These changes are part of a settlement that MasterCard and Visa have agreed upon with the Justice Department. However, the two companies can still mandate merchants that use their payment networks to accept all brands of cards. The only change is that the retailer can favor one card over another by providing incentives. Therefore credit card customers can continue to pay with their credit cards, if they don`t have an option, but if they do, they can choose to pay with the card that the merchant favors and earn a rebate. The merchant too earns by making the customer use a card which has less interchange fees.

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