Every time a consumer pays with a card, whether credit or debit, an entire “industry” is behind, with a series of charges raising the “pie” worldwide to over 170 billion dollars!
So every time a consumer swipes a credit or debit card or clicks a website’s “buy” button, a series of events moves money from the consumer to the merchant. The process cost retailers more than $170 billion in fees last year – and banks, payment networks (such as Visa and Mastercard) and payment processors are fighting hard for a share of that.
But to make themselves more competitive, Visa and Mastercard agreed on March 26 to so-called “scanning fees” as part of a settlement to end a legal battle that lasted nearly two decades.
- What is a credit card “scanning” fee?
What’s known in payments industry parlance as an interchange fee is typically split between multiple parties and amounts to about 2% of the purchase price for a credit card transaction and 21 cents for a debit card transaction.
The US has what is known as a four-party system – the consumer, the consumer’s bank, the merchant and the merchant’s bank. The networks, Visa and Mastercard, sit between the consumer’s bank and the merchant’s bank and send signals from both sides that allow money to pass securely between the two. In a typical transaction, the revenue is shared between the two banks and either Visa or Mastercard.
- Who pays the fee?
The merchant. The idea is that banks take on most of the risk by lending the consumer the money for a credit card purchase. And studies show that consumers spend more when they use a card instead of cash, which is good for the merchant, ot.gr reports.
- What about the current system?
Retailers, restaurants, small businesses and other merchants say consumers end up footing the bill with higher prices. Those critics also say that swipe fees fund the luxury rewards — airline miles, cash back and the like — that banks offer wealthy credit cardholders, who in turn are usually willing to pay hefty annual fees for the privilege. .
- What is the new deal?
For years, lawyers representing millions of merchants have been negotiating with Visa and Mastercard to change their scan fee practices. The companies agreed to cut fees as part of a deal that US retailers say will save them at least $30 billion over five years.
The deal, which is subject to court approval, would also allow retailers to charge consumers extra at checkout for using Visa or Mastercard credit cards and use pricing tactics to steer customers to lower-cost cards. It could fundamentally change the way consumers think about paying for products at checkout with a credit card.
Also, retailers are pushing lawmakers to limit interchange fees for credit cards, as they did several years ago for debit cards.
- Who else is competing for these fees?
Companies like Block’s Square and Stripe have entered the so-called merchant space by offering lower prices or better service to small businesses that accept online payments.
Square’s products, which turn a mobile phone into a credit card payment processor, appeal to some retailers because of the simplicity of the flat-rate pricing system.
Also provider is Apple Pay and other so-called mobile payment offers.
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