Interchange Discount and Fees
Someone who want to be merchant sales person often came with questions “what the interchange and how do interchange fees differ from discount fees is”. Interchange is set by Visa and MasterCard and represents the fee paid by merchant bank to the card issue bank. Interchange fees vary by:
Retail Sector
Grocers typically have the lowest interchange rates, while the internet transactions are the highest
Type of Credit Card
Consumer vs commercial versus check card
Size of Transaction
Large commercial vs Small consumer purchases
Authorization Procedures
Think of interchange as the wholesale cost, discount and then is what is cost retail or more accurately, is the cost to retailers. Fee of discount incorporates interchange plus mark up for processors and other service providers and is paid by the merchant on a per transaction basis. Amex and Discover do not change interchange instead merchants pay these companies discount fees.
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Speaking of interchange fees - did you happen to see the WSJ article yesterday written by Rep. Cannon and Rep. Conyers on the bill they’re trying to get through in order to bring more accountability to the credit card industry in relation to these crazy fees? I’ve been keeping an eye on this issue since I started doing some work with unfaircreditcardfees.com and their article is definitely worth checking out: http://online.wsj.com/article/SB120761848250296947.html?mod=googlenews_wsj
Hopefully they will get something through that will help out merchants who are subject to these unregulated fees that really cut into profits. If you get a chance read the article I’d really like to get your take on the issue and what you think of the bill.
-Mike