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Your conflating fees charged to Merchants (by processors) and rewards offered to Card Holders (by issuers). While often the same bank performs, or is a partial
by AdieuToLogic 7y ago
Your conflating fees charged to Merchants (by processors) and rewards offered to Card Holders (by issuers).
While often the same bank performs, or is a partial owner involved in, both processing and issuing, the percentages you quote are largely disjoint.
> I'm reading that Visa typically charges 2.3% to merchants ...
The Discount Rate[0] a Merchant pays varies significantly based on the line-of-business, charge-backs, processing contract, and a bunch of other things.
> ... at least on average 1% of each transaction goes to cardholder bonuses ...
Again, issuer costs have no bearing on Merchant fees nor the profitability of processors.
0 - https://www.creditcards.com/credit-card-news/glossary/term-discount-rate.php https://www.creditcards.com/credit-card-news/glossary/term-d...
- nitrogen 7y agoAgain, issuer costs have no bearing on Merchant fees nor the profitability of processors. If this is true, then where does the cash back come from if not as a cut of the merchant fees?
- AdieuToLogic 7y ago> > Again, issuer costs have no bearing on Merchant fees nor the profitability of processors. > If this is true, then where does the cash back come from if not as a cut of the merchant fees? Interest rates + membership fees charged by issuers to Card Holders.
- rstupek 7y agoI don't think that is correct. Merchants are charged different rates based on the cash back rates of a given card. Merchants have to eat most of that cash back being given to the card holders.
- ceejayoz 7y agoInterchange fees are higher on premium (rewards) cards. The merchant may contractually pay a fixed percentage that accounts for the expected mix of cards, but those rewards absolutely come from merchant fees.