Interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card based transactions. Usually for sales / service transactions it is a fee That a merchant’s bank (the “Acquiring bank”) countries a customer’s bank (the ” issuing bank “); And for cash transactions the interchange fee is paid from the issuer to acquire, often called reverse interchange.

In a credit card or debit card transaction, the card issuing bank in a payment transaction deducts the interchange fee from the amount it pays the debit card for a merchant. The Acquiring bank country Then the merchant the amount of the transaction minus Both the interchange fee and an additional, usually smaller, fee for the Acquiring bank gold sales independent organization (ISO) , qui est Often Referred to as a discount rate , an add- On rate, or passthru. For cash withdrawal transactions at ATMs , however, the fees are paid by the card-issuing bank for the maintenance of the machine.

These fees are set by the credit card networks, [1] and are the largest component of the various fees that most merchants pay for the privilege of accepting credit cards, representing 70% to 90% Typically pay less as a percentage. Interchange fees, which have a complex pricing structure, which is based on the card brand, regions or jurisdictions, the type of credit or debit card, the type of transaction (eg online, in-store, Phone order, whether the card is present for the transaction, etc.). Further fees are payable to the owner of the apartment. In the United States, the fee averages approximately 2% of transaction value. [2] In the EU , interchange fees are capped to 0.3% of the transaction for credit cards and to 0.2% for debit cards. [3]

In recent years, the subject of regulatory and antitrust investigations. Many large merchants such as Wal-Mart have the ability to negotiate fees, [4] and while some merchants prefer cash or PIN-based debit cards, most believe they can not realistically refuse to accept the major card-branded cards. This holds true even when their interchange-driven fees exceed their profit margins. [5] Some countries, such as Australia, have established lower interchange fees. [6] The fees are also the subject of several ongoing lawsuits in the United States.

Overview

Image from a GAO report explaining how the interchange fee works.

Visa and MasterCard are accepted as methods of payment.

In the US, card issuers now make $ 30 billion annually from interchange fees. Interchange fees collected by Visa [7] and MasterCard [8] totaled $ 26 billion in 2004. In 2005 the number was $ 30.7 billion, and the increase totaled 85 percent compared to 2001.

The origins of the interchange fee are a matter of some controversy. Often they are assumed to have been developed to maintain and attract a proper mix of issuers and acquirers to bank networks. Research by Professor Adam Levitin of Georgetown University Law Center, however, indicates that interchange fees were originally designed as a method for banks to avoid usury and Truth-in-Lending laws. [9] Typically, the bulk of the fee goes to the issuing bank. Issuing banks’ interchange fees are extracted from the amount collected by the merchants when they submit credit or debit transactions for payment through their acquiring banks. Banks do not expect to make a significant amount of money from late fees and interest charges from creditworthy customers (who pay in full every month) And instead make their profits on the interchange fee charged to merchants. [10]

Interchange rates for a variety of reasons. For example, a credit card that offers a higher rating than standard cards. [11] PIN debit card transactions. PIN debit card transactions. We are not responsible for the accuracy or completeness of this information. We are not responsible for the accuracy of this information. This is due to the increasing risk and fraudulent transactions. It is important to note that all merchants are subject to. It is set to encourage issuance and to attract issuing banks to issue a particular brand. Higher interchange is often a tool for schemes to encourage issuance of their particular brand. [12]

For one example of how interchange functions, imagine a consumer making a $ 100 purchase with a credit card. For that $ 100 item, the retailer would get approximately $ 98. The remaining $ 2, known as the merchant discount [13] and fees, gets divided up. About $ 1.88 would go to the card issuing bank (defined as interchange), $ 0.18 would go to the Visa or MasterCard Association (defined as assessments), and the remaining $ 0.07 would go to the retailer’s merchant account provider. If a credit card displays a Visa logo, Visa will get the $ 0.18, likewise with MasterCard. Visa’s and MasterCard’s assessments are fixed at 0.1100% of the transaction value, with MasterCard’s assessment increased to 0.1300% of the transaction value for consumer and business credit volume on transactions of $ 1,000 or greater. On average the interchange rates in the US are 179 basis points (1.79%, 1 basis point is 1 / 100th of a percentage) and vary widely across countries. In April 2007 Visa announced it would raise its rate .6% to 1.77%. [14]

According to a January 2007 poll by Harris Interactive, 32% of the public had heard of the interchange fee; , Said the United States Congress “should compel credit card companies to better inform consumers” about the fee. [15]

Controversy

Price-fixing

Regulators in several countries have questioned the collective determination of interchange rates and fees as potential examples of price-fixing . Merchant groups In Particular, Including the US-based Merchants Payments Coalition and Merchant Bill of Rights, aussi claim That interchange fees are much Higher Than Necessary, [16] pointing to the fact That Even Though technology and efficiency-have Improved, interchange fees Have More Than doubled in the last 10 years. Issuing banks would argue that reduced interchange fees would result in increased costs for cardholders, and reduce their ability to satisfy rewards on cards already issued.

Consumer welfare

A 2010 public policy study conducted by the Federal Reserve concluded the reward program as an interchange fee in a non-trivial monetary transfer from low-income to high-income households. Reducing merchant fees and card rewards would likely increase consumer welfare. [17]

The Merchants’ Payments Coalition for a more competitive and transparent system. Because swipe fees are hidden, consumers are unable to weigh the benefits and costs associated with choosing a particular form of payment. Eliminating hidden swipe fees is advocated as a means of realizing an open market system for electronic payments. [18]

By region

United States

Payment Card Interchange Fee and Merchant Discount Antitrust Litigation

The Payment Card Interchange Fee and Merchant Discount Antitrust Litigation is a United States class-action lawsuit filed in 2005 by merchants and trade associations against Visa , MasterCard and numerous financial institutions that issue payment cards. The following is a summary of the financial performance of the credit card industry. A proposed settlement received from the judge overseeing the case in November 2012, but the majority of the plaintiffs have objections and many have vowed to opt out of the settlement.

In December 2013, US District Court Judge John Gleeson approved a settlement for $ 7.25 billion. [19] The settlement reduces interchange fees for merchants and also protects credit cards companies from lawsuits over the issue in the future again. [20]

Legislation and Congressional investigations

Senate hearings in the United States have focused on the secrecy surrounding interchange fee schedules and card operating rules. In 2006 Visa and MasterCard both published some fee schedules and summary reports of their card. In January 2007, Senate Banking Committee chairman Chris Dodd cited interchange fees at a hearing on credit card industry practices and again in March the fees were criticized by Sen. Norm Coleman . [21] In January 2007, Microsoft chairman Bill Gates Cited high interchange fees as a significant reason Microsoft Believes it can not be competitive in online micropayments .

In March 2007, MasterCard announced it was changing its rate structure, splitting the lower, “basic” tier for credit cards into two new thirds. The Wall Street Journal reported [22] that the paper outlining the shift “makes it difficult to determine if the new rates, on average, are rising.” MasterCard spokesman Joshua Peirez said the new structure “allows us to have a more sophisticated way to break up our credit card portfolio,” while National Retail Federation general counsel Mallory Duncan said, “They are pricing each other at the absolute most they can so they Can maximize their income. ”

On July 19, 2007 the House of Judiciary Committee on Torture. NRF’s Duncan testified, as did representatives of the credit card industry. Subcommittee chairman John Conyers , leading the panel, said, “While I come into the hearings with an open mind, I do believe the burden of the proofs with the credit card companies to reassure Congress that increasingly are not harming merchants and ultimately Consumers. ” [23]

On October 1, 2010, the Durbin Amendment came into effect as a last minute addition to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. As a result, banks have begun to limit the incentives offered with their checking account products, And some have announced that they would initially charge their customers a fee for the use of the cards. [24]

In the same month, Visa and MasterCard reached a settlement with the US Justice Department in an antitrust case focused on the issue of competitiveness in the interchange market. The companies agreed to allow merchants displaying their logos to decline certain types of cards, or to offer customers discounts for using cheaper cards. [25]

European Union

In 2002 the European Commission exempted the European Communities from the prohibition of anti-competitive arrangements. [26] However, this exemption expired on December 31, 2007. In the United Kingdom, MasterCard has reduced its interchange fees while it is under investigation by the Office of Fair Trading.

In January 2007, the European Commission issued the results of a two-year inquiry into the retail banking sector. The report focuses on payment cards and interchange fees. Upon publishing the report, Commissioner Neelie Kroes said “the present level of interchange fees in many of the schemes we have examined does not seem justified.” The report calls for further study of the issue. [27]

On December 19, 2007, the European Commission issued a decision prohibiting MasterCard’s multilateral interchange fee for cross-border payment card transactions with MasterCard and Maestro. The Commission shall have the right to. [28] MasterCard has appealed the Commission’s decision before the Court of First Instance; While the appeal is pending MasterCard has temporarily repaid its multilateral interchange fees.

On March 26, 2008, the European Commission opened an investigation into the visa-multilateral interchange fees for cross-border transactions within the EEA. ). [29]

The antitrust authorities of the United States are also investigating MasterCard’s and Visa’s interchange fees. For example, on January 4, 2007, the Polish Office of Competition and Consumer Protection fined twenty banks totaling PLN 164 million (about $ 56 million) for jointly setting MasterCard’s and Visa’s interchange fees. [30]

In March 2015, the European Parliament voted to cap the interchange fees to 0.3% for credit cards and to 0.2% for debit cards, [3] which was subsequently enacted under Regulation 2015/751 with effect from 8 June 2015. [31 ]The caps apply only to personal cards Where There is an intermediary, not to gold cards Issued to businesses to cards Issued by American Express. [32]

Australia and New Zealand

In 2003, the Reserve Bank of Australia required that interchange fees be dramatically reduced, from about 0.95% of the transaction to approximately 0.5%. Citation needed ] One notable result has been reduced the use of reward cards and increased use of debit cards. Australia also removed the “no overcharge” rule, a policy established by credit card networks like Visa and MasterCard to prevent merchants from charging credit card use fee to the cardholder. A surcharge would mitigate or even exceed the value of the cardholder by the merchant, but would also make the cardholder more reluctant to use the card as the method of payment. Australia has also made changes to the interchange rates on debit cards,

In 2006, the New Zealand Commerce Commission issued proceedings against Visa and MasterCard, alleging that interchange fees constitute price fixing and result in a substantial lessening of competition. [33] Shortly before the court case was due to start in Autumn 2009, the following was settled out of court; The “no overcheck rule” was prohibited, allowing retailers to pass on the cost of MasterCard and Visa transactions to the customer, and card issuers were allowed to set their own interchange fees, within a maximum limit set by Visa or MasterCard. [34] All issuers of MasterCard cards in New Zealand would be charging the maximum rate. [35] The Commission released a report in 2013 reviewing the outcome of the settlement, Which was a great deal for me. [36]

References

  1. Jump up^ United States Securities and Exchange Commission FORM S-1, November 9, 2007.
  2. Jump up^ Martin, Andrew (January 4, 2010). “How Visa, Using Card Fees, Dominates a Market” . New York Times . Retrieved 2010-01-06 . The fees, roughly 1 to 3 percent of each purchase, are forwarded to the cardholder.
  3. ^ Jump up to:b “European Parliament vote to cap interchange fees and improve competition for card-based payments” (Press release). European Commission . March 10, 2015 . Retrieved April 29, 2015 .
  4. Jump up^ The Interchange Debate: Issues and EconomicsJames Lyon, Jan. 19, 2006.
  5. Jump up^ A Puzzle of Card Payment Pricing: Why Are Merchants Still Accepting Card Payments? Fumiko Hayashi, March 2006.
  6. Jump up^ “Rising Interchange Fees for Increased Costs for Merchants, Purpose Options for Reducing Fees Pose Challenges”, US Government Accountability Office, November 2009
  7. Jump up^ “Visa USA Inc. Interchange Reimbursement Fees – Visa USA” . Retrieved 27 May 2015 .
  8. Jump up^ “MasterCard Interchange Rates & Fees – MasterCard” . Retrieved 27 May 2015 .
  9. Jump up^ Adam J. Levitin, Priceless? The Economic Costs of Credit Card Merchant Restraints , 55 UCLA Law Review, 1321 (2008).
  10. Jump up^ The World’s Most Exclusive Credit Cards Forbes, July 3, 2007.
  11. Jump up^ “Interchange Plus Pricing?” . Helcim . Retrieved 9 Aug 2016 .
  12. Jump up^ “What is Interchange-Plus Pricing?” . Credit Card Processing Space . Retrieved 27 May 2015 .
  13. Jump up^ Merchant account
  14. Jump up^ Visa Hikes Overall Interchange 0.6%, Effective April 14 Digital Transactions, April 12, 2007. Retrieved May 22, 2007.
  15. Jump up^ Card Issuers, retailers at odds Los Angeles Times, April 2, 2007. Retrieved May 22, 2007.
  16.  Indianapolis Star, May 22, 2007. Retrieved May 22, 2007.(subscription required)Jump up ^ Merchants, pay attention to rising
  17. Jump up^ Who Gains and Who Loses from Credit Card Payments? Federal Reserve Bank of Boston, August 31, 2010
  18. Jump up^ Merchant Payment Coalition About UsRetrieved June 6, 2015
  19. Jump up^ (2013-12-17). “Court approves controversial interchange fee settlement”. Bank Credit News. Retrieved 2014-01-14.
  20. Jump up^ (2014-01-10). “EPC: NRF appeal of interchange settlement a” political ploy.”Bank CreditNews.Retrieved 2014-01-14.
  21. Jump up^ Sen. Coleman statement, Senate.gov, March 7, 2007. Retrieved May 22, 2007.
  22. Jump up^ MasterCard Alters Fee Structure,Wall Street Journal, March 1, 2007. Retrieved May 22, 2007.
  23. Jump up^ US lawmaker wants proof credit card fees do not harmReuters, July 19, 2007. Retrieved July 20, 2007.
  24. Jump up^ “Debit Card Changes: How the Durbin Interchange Fee Cap Hurts Consumers” . The Heritage Foundation . Retrieved 27 May 2015 .
  25. Jump up^ “Visa, Mastercard settlement means more flexibility for merchants” . Retrieved 27 May 2015 .
  26. Jump up^ “Commission free multilateral interchange fees for cross-border Visa card payments” (Press release). European Commission . July 24, 2002. Retrieved February 18, 2011 .
  27. Jump up^ “Competition: Commission sector inquiry finds major competition barriers in retail banking” (Press release). European Commission . January 31, 2007 . Retrieved February 18, 2011 .
  28. Jump up^ “Antitrust: Commission prohibits MasterCard’s intra-EEA Multilateral Interchange Fees” (Press release). European Commission . December 19, 2007 . Retrieved February 18, 2011 .
  29. Jump up^ “Antitrust: Commission initiates formal proceedings against Visa Europe Limited” (Press release). European Commission . March 26, 2008 . Retrieved February 18, 2011 .
  30. Jump up^ http://www.uokik.gov.pl/en/press_office/press_releases/art72.html. See also the press release on the Hungarian investigation athttp://www.gvh.hu/gvh/alpha?do=2&st=2&pg=154&m129_doc=4413
  31. Jump up^ “Regulation (EU) 2015/751 of the European Parliament and of the Council of 29 April 2015 on interchange fees for card-based payment transactions” . European Commission . Retrieved 25 July 2015 .
  32. Jump up^ “The REAL facts about credit card interchange fee capping” . Head for Points . Retrieved 25 July 2015 .
  33. Jump up^ COMPETITION POLICY AND CREDIT CARD INTERCHANGE FEES IN NEW ZEALAND- Dr. Stephen Gale and Ben Gerritsen
  34. Jump up^ Trade Commission and Visa agreement to the credit card interchange fee proceedings- Trade Commission, 12 August 2009
  35. Jump up^ Mastercard New Zealand: Understanding Interchange- retrieved 8 March 2015
  36. Jump up^ Evaluation of the 2009 interchange and credit card settlements: Research report- Trade Commission, Date: 19 December 2013