On Monday, the Justice Department sued Visa, MasterCard, and American Express for anticompetitive practices. At the same time, it reached a proposed settlement with Visa and MasterCard. The ruling aims to end anticompetitive practices and allow customers to save money, but it is likely to also have unintended consequences for consumers, says LowCards.com. (source: www.ctwatchdog.com)
Interchange Fee is Confusing
Interchange fees, or swipe fees, are difficult to understand, and credit card processors like Visa, MasterCard and American Express have provided very little information about these fees, protecting their control and this significant revenue source. (source: www.ctwatchdog.com)
Interchange fees began in the 1960s to help banks to cover the cost of processing credit card transactions. The fee is divided between the merchant’s bank, the consumer’s bank and the credit card company. The fee covers processing fees, billing statements, fraud protection, innovations, and other expenses. (source: www.ctwatchdog.com)
Interchange fees typically range between 1.0% and 3.5% of every purchase made with a credit card. Few consumers realize how much the merchant pays for the convenience of credit cards. There is no mention about the fee in the credit card terms and conditions, and merchants have been prohibited from mentioning swipe fees to customers. Merchants argue that these fees have inflated the cost of goods, especially for the consumer that pays with cash instead of a credit card. (source: www.ctwatchdog.com)
It is unclear to me yet about how this will ultimately trickle down to consumers, but you better believe that corner stores and department stores alike will figure out how to encourage consumers to use the lower cost form of payment although they are “contractually” barred from steering consumers.
Put your thinking cap on now as a business owner. If it costs you 1.75% to make a rewards card transaction and you can now make a transaction that only costs you 1.25%, you essentially save .5% on all of the purchases made in your store. For every $1,000,000 of sales that means an extra $5,000 to the bottom line. With every business owners needs to watch their profit and loss statements closely in today’s economy, you can be sure that merchants will have their pom-poms cheering you on to use certain forms of payment.
When this is all said and done, I think you’ll see larger reward programs from the credit card companies to consumers who use their credit cards more underneath this new regulation. And all this time I thought our goal was to get ourselves out of debt—go figure!
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
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