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Visa Publishes Interchange Fees For Credit Cards

By Martin H. Bosworth
ConsumerAffairs.com

October 19, 2006

Credit Card Fees • Visa, Mastercard Settle Suit With West Virginia • House Studies Credit Card Fees • Retailers Fret Over "Swipeless" Credit Cards • Visa Publishes Interchange Fees For Credit Cards • MasterCard Offers Concessions In Interchange Fee Battle • Merchants Testify Before Congress on Credit Card Price-Fixing • MasterCard IPO Shifts Risk from Banks to Investors • Thanksgiving: A Day Without Credit Cards? • Credit Card Companies Rocked By New Merchant Lawsuits • Merchants Sue Credit Card Issuers Seeking Lower Fees • Suit Challenges Credit Card Fees

Visa has taken the unusual step of publishing a list of "interchange fees" it charges merchants to process their credit and debit cards when customers make transactions with plastic.

The fees are often called a "hidden tax on consumers," as they can drive up the price of goods and services without consumers' knowledge.

It's these interchange fees that have led a coalition of merchants and retailers to sue Visa, MasterCard, and their partner banks, over what the merchants call collusive price-fixing.

The interchange fee list, available as a PDF report, is a bewildering array of "performance thresholds" and "reimbursement fees" that seems to require a degree in calculus to understand.

The basic gist is that different cards and different purchases end up costing merchants different fees to process, ranging from 1 to 2 percent of the transaction plus change.

When you factor in the billions of credit and debit transactions that go on in the world daily, 1 percent of a purchase can add up to millions in revenue for banks and card companies. It can also wipe out the retailer's profit from a transaction.

In order to make a profit, merchants will often raise prices on their goods and services, even for those who pay exclusively with cash.

The Merchant Payments Coalition, the group representing retail and restaurant chains, hailed the move but said that it wasn't enough to simply reveal the fees, and that more transparency was needed in the business.

"The report shows a bewildering array of rates for different cards, merchants and types of transactions, which emphasizes the opacity of interchange," said MPC chairman Mallory Duncan.

Duncan also noted the recent Government Accountability Office (GAO) report on the poor disclosure of credit card fees to consumers, saying it was "no surprise" that merchant fees would be similarly hard to understand.

Although Visa had originally claimed it would not publish its interchange fee rates, the world's largest credit card company reversed course after chief rival MasterCard agreed to do so in an attempt to appease the merchants suing the company.

Visa recently announced its own initial public stock offering, after eyeing the success of MasterCard's debut on the market. The MasterCard IPO is chiefly designed to build a "war chest" of funds to pay for litigation and settlements in the merchant lawsuits, thereby shifting the risk to investors rather than the member banks that formerly owned MasterCard.

Mitch Goldstone, one of the lead plaintiffs in the class-action merchant lawsuits, said on his blog that Visa and MasterCard should post the exact interchange fee of each transaction on the customer's receipt.

"Without this honest and straightforward posting, this hidden tax will continue to feed Visa and MasterCards' member banks with thirty billion dollars each year," Goldstone said.

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