In a recent development, charges for making purchases via credit cards are set to increase, which is an event that will have a wide impact on companies and customers alike. The Wall Street Journal (WSJ) reported today, 15th February 2019, that two of the largest credit card companies (Visa Inc. and Mastercard Inc.) plan to hike up their existing merchant processing fees.
According to WSJ, changes are to be implemented this April. And in addition to Visa and Mastercard being affected, Fortune also released today that another US-based credit card company is set to make similar changes: Discover Financial Services, Inc.
That’s three of the major giants in the world of credit card networks.
What Kind Of Impact Will The Raise In Fees Have?
These changes will have an impact on the amount that customers (and businesses) have to spend when purchasing goods. Prices will rise for products across the board, as merchants need to cover the additional costs of higher credit card fees. So, whether you pay using a credit card or not, you can still expect to be paying more.
In short, higher prices for merchants processing credit card payments means higher prices for everything and everyone.
What Are The Fees Specifically Affected By This Development?
There are two main types of fees that will be affected, and will rise as a result, which are interchange fees and transaction fees. ‘Interchange fees’ refers to the percentage taken by the bank that issued the credit card for handling the transaction for the merchant. And then there are fees that are charged by the credit card networks for making each transaction: ‘transaction fees’.
Businesses are charged a merchant discount fee for each credit card payment made that goes to the bank processing the transaction. This amount varies depending on the size of the business, but can be as high as 3% of the sale. Price hikes impacting this area in particular have a wide impact on how much things cost.
Responses To Merchant Processing Fees For Credit Card Payments
These fees have had their share of criticism and resistance from retailers. On 18th September 2018, WSJ reported that Visa and Mastercard settled an antitrust legal dispute with merchants over credit card processing fees with a payment of $6.2 billion (roughly £4.8 billion).
Despite this pushback, Visa’s annual report for 2018 revealed that they are still bringing in an impressive revenue of $20.6 billion (roughly £16.1 billion) and a net income, or profit, of $10.3 billion (roughly £8 billion) which is a significant 50%. Mastercard are also doing well, boasting around $15 billion (roughly £11.7 billion) in revenue and a net income of $5.9 billion (roughly £4.6 billion), which is 39%, in their annual report. Discover’s annual report for 2018 has yet to be released.
Although some merchants and customers may be unhappy about how this increase in credit card processing fees could drain their wallets, businesses rely on merchant processing services to make a large portion of their sales. This means that most companies using Visa, Mastercard and Discover will simply have to accept and pay the new charges from April onwards.
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