Do you know who really pays for processing every time you swipe that plastic card? Well, it is the merchant and the processing costs are paid as interchange fee to the merchant’s own bank, the customer’s bank, and computer network that processes the transaction. Banks earned over USD 48 billion in interchange fees in 2008, which is more than the total revenues from fees on checking or saving accounts.
Merchants and credit card issuers have tie regarding interchange fees. Merchants find it unfair to give away a part of revenues to the credit card issuer and desire a change in the system. They find themselves in tight situation because if they do not provide the facility of using a Visa or Mastercard, they are most likely to make their customers unhappy. On the hand, credit card companies argue that the interchange fees simply cannot be waived off; somebody will have to pay for it. According to a recent report by the Government Accountability Office (GAO), the payment could ultimately land in the lap of consumers in the form of increased fees in other areas.
The government is evaluating various options to regulate interchange fees and draw a fair line between credit card issuers and merchants. Considering 2008 figures, if the government intervenes and reduces the interchange fees from 2.1% to 0.60%, it could save $34.3 billion annually for consumers as well as merchants. However, with the Credit CARD Act to be fully effective soon, the reduction seems less likely to occur. The credit card issuers are already finding their business in jeopardy and reducing the interchange fees could hit their revenues.
Government officials have said that retailers are pushing the agencies that regulate financial services to find a legislative solution. The GAO report suggests increase in transparency for consumers OR granting the ability to merchants to negotiate on rates directly with the credit card issuers could resolve the issue. But, even if the interchange fees are lowered it may eventually pass on to consumers.
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