New choices brought about with swipe fees

Wednesday, October 6th, 2010

As though the confusion that already exists was not enough, there seems to be added confusion with the recent settlement with regard to “interchange fees”. The battle over the interchange fees has finally come to a close with the recent settlement.

With credit cards come the various costs such as annual fees, penalties, interest rates etc. But there is also a swipe charge or the processing fee when a transaction takes place. Since consumers are not really aware of the interchange fees, they rarely get into the details, which the card issuers don’t always reveal. In fact, merchants are the first to protest with regard to this fee, as they claim that it interferes with their promotional offers and the discounts or rebates that they could offer their customers in order to promote low-cost modes of payments. They insist that the cost of both the goods and services are increased due to this fee.

Last week saw a major victory for the merchants when the justice department delivered their verdict which was in favor of the merchants, whereby there would be transparency as well as flexibility with regard to the payment options as well as lowered costs in case the consumers prefers paying with cash/debit card/no-frills cards/checks instead of using the regular credit card. As per the settlement, MasterCard as well as Visa can no longer stop merchants from promoting low-cost options and offering rebates. AmEx is presently being sued by the justice department for not complying with its orders.

Interchange fees acts as a lubricant and helps the credit card system run smoothly. Issuers claim that helps in the running costs such as the operational costs, rewards programs, risks of losses, detection of fraud, and payments made to retailers before the reimbursment from the customers.

Senior Vice President, Mallory Duncan, National Retail Federation, stated that this would bring consumers flocking to the cards offering maximum discounts. While the consumers might not realize, an average family ends up paying about $427 annually by way of interchange fees. So the consumers will have to decide whether they wish to use the card and earn reward points or avail grace period, or cut down on paying the interchange fees. But one has to wait and see if benefits/discounts are genuinely passed on to the consumers by merchants. While keeping with this order banks may cut down on the benefits in order to make the cards less viable as the banks would earn lesser revenue, or they might offer more rewards for using the card. If consumers start spending less as they will have to pay cash, it would certainly hurt the merchants a lot.

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