March 31, 2009
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News: 'Interchange'; The Phantom Fees We Feel but Don't See
Nearly all credit card consumers are unsuspecting and merchants are kept in the dark, as well. ‘Interchange Fees' are the tap for credit card associations like VISA and MasterCard. Their intended purpose is neither deceptive nor shady. Since the business of associations is a service, there is no physical product to display. But when a credit card is fraudulized, their effect is not only forthright but essential. We credit card holders don't want to be responsible a thief 's $20,000 charge on our account. The good news is that we won't. Why? Interchange fees, in part.
When a business decides to enjoy the added business that credit cards draw, they are asked to ‘pay to the piper' in interchange fees. Every credit card transaction submitted by a merchant for payment against a customer's account will exact certain fees in the form of percentages of the charge amount. For example, one $100 charge can result in a total combined interchange fee of 1% (the merchant will only be reimbursed $99). Another $100 charge can result in a total combined interchange fee of 3% (the merchant will only be reimbursed $97). Sounds like no big deal unless the merchant takes in $1 million in charges in a day (some do). Now, the difference between the two is 2% of $1 million ($20,000) a day. In order to stay in business, the merchant will have to pass this overhead on to the customer in higher prices, though the credit card consumer is unawares except for how expensive things are.
So, interchange fees are necessary and beneficial. What is not, contend merchant and consumer advocacy groups like "Merchants Payments Coalition" and "National Association of Convenience Stores", is the mystery and hard-ball control that the banks and credit card associations place on the fee percentages at their arbitrary discretion. The merchants have no voice in these decisions. Say the banks and associations, "the system's complicated but working fine". Says the public "We want it looked into".
Upon demand of this public outcry from both sides of the credit card, both the House Financial Services Committee and GAO (Governmental Accountability Office) are initiating a close study of the situation. This is not a new issue, it was addressed last year, but stalled in Congress.