Interchange Under Pressure - Again
Posted on 30 May, 2007 under Credit Card Processing by Bryan Johnson
Almost every spring both Visa & MasterCard raise their ‘interchange’ rates, which are essentially the wholesale costs for the credit card processing industry. To better understand Interchange, read Where do Credit Card Fees Come From?
Merchants have seen a dramatic increase in their credit card processing fees over the past few years. The interchange increases that went into affect this April represent an estimated 17% increase over the last year and a whopping 117% increase since 2001.
Rate increases are not the only source of contention but also on the type of transactions that interchange is being charged on. For example, interchange is also collected on sales tax, not just the price of the good or service that was purchased.
There are some groups such as the Merchants Payments Coalition who are trying to argue that the Federal Reserve Board has the authority to control interchange. Whether or not that’s true, the mere presence of the argument mounts increased pressure on the Card Associations (Visa & MasterCard) and signals more clearly that the unrest among merchants may be moving towards a tipping point.
So what does this all mean for you? Well, maybe not immediate relief in lower interchange fees, but perhaps a reassurance that others are fighting this battle for you and their efforts are gaining steam and someday, may just make it to your bottom line.
One Comment so far
Good post. There is indeed growing pressure on Visa and MasterCard interchange fees. It is doubtful that interchange will simply go away or get dramatically slashed. All payment brands, not just Visa and MasterCard, compete to get banks to issue cards with their brand, and interchange is one of the most important features that banks look at when choosing a brand. Rather than seeing interchange get slashed, you can expect to see major innovation and new features created by the payment brands for the benefit of merchants, in order to take the pressure off of interchange. The IPO’s of both Visa and MasterCard also push strongly in this direction.