Bank merchant services interchange fees are not a tax, nor are they hidden or paid by consumers. It is instead a fee that is paid between the acquiring bank and the consumer's bank and serves to distribute costs in the card processing systems of Visa and MasterCard. Interchange makes up a major part of the discount rate, which merchants are assessed for the benefits they get when they accept credit and debit cards. These benefits include increased sales, fraud detection and quicker payment.
Bank merchant services discount rates, which can feature fees for processing payments or terminal leasing, are only one of multiple other costs a retailer has to account for when running a business. Consumers are well aware that retailers factor all of the expenses of running their operations into their pricing. Attempts to label such expenses as a hidden tax on Americans would be like claiming that utility costs are a hidden tax.
Interchange fees are not paid by customers. They are paid between banks participating in card transactions. Not to mention that retailers are free to give discounts to customers who use cash and checks for payment.
MasterCard and Visa establishes the bank merchant services interchange fees to offer incentives to retailers to take cards and to banks to issue them. Moreover, while The Associations set the interchange fees to allow for efficient interaction among the thousands of their member banks, they receive back no revenue from them.
If a bank merchant services user is not satisfied with the discount rate it has been given by its bank for payment acceptance, that business has multiple options: it can offer discounts to customers who pay with check or cash, ca negotiate a different discount rate with its processor, or switch to another who offers more attractive rates, or indeed choose not to accept bank cards at all. There is a huge competition for payment processing among banks and service providers. Retailers, of course, can decide which payment proposal they accept and can elect to encourage customers to use any given payment choice.
Interchange fees have increased quite slowly (1.9 percent for the past two decades – much lower the inflation rate). Total interchange rates are paid among Visa and MasterCard member banks and have risen as more retailers have begun accepting payment cards. Moreover, according to a recent report, U.S. retailers actually pay bank merchant services discount fees that are lower than those charged in many other countries.
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