Visa MasterCard Discovery

Card issuers and merchants fight over interchange fees

[Sunday, October 24th, 2010]

The customer isn`t always king. Sometimes he`s just a pawn.

We have heard this enough and more – the customer is king. However this is not always the case with credit cards. Especially when it comes to the continuous battle between banks about swipe fees when using plastic, there is a huge conflict that is unresolved.

Both merchants and card issuers continue to stand at odds claiming to be fighting for the consumer`s rights. There is of course interchange fees running into billions of dollars at stake! Here`s what every consumer should know:

What are interchange fees?

Firstly, MasterCard and Visa are networks that process transactions made on the credit cards but not issuers. The network use has costs placed on it paid through a complicated mechanism that is in place.

When using plastic to pay, merchants have to pay a fee to the bank that gave the card and this can vary based on the purchase amount and regulations in place. The deal Visa and MasterCard have is with the banks and not the fees that are levied. Therefore card issuers argue that the fees levied are good for sales and also for convenience of transactions done. However the merchants argue that they find it too high a cost for them to afford and that customers should be able to have costs which are lesser and not higher because of the credit cards they use.

What is different now?

The new regulations that came about has made the legal minimum for credit card purchases at $10. This however is more likely to have some implication at smaller stores and how merchants can reap rewards is still unclear.

What`s the settlement between Visa and MasterCard with the Justice Department and what does it mean for clients?

The settlement arrived at between these parties is letting merchants provide benefits to consumers for using cards from a network resulting in lowering of the interchange fees based on the bank which issued the card.

Will merchants not accept credit cards or reward cards due to increased interchange fees on them?

Retailers have a new incentive to get customers to use lower cost cards, the merchants have to accept all cards issued by Visa and MasterCard without any hitches. This re-emphasizes the fact that the network is on the higher end and tends to be able to make larger decisions and have a bigger hold on the larger picture of things.

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