4 ms·

There are virtually no fixed costs to actually performing the transactions. The fees are levied by the not-so-competitive Visa/Mastercard/AMEX trio that would l

by bgentry 14y ago

There are virtually no fixed costs to actually performing the transactions. The fees are levied by the not-so-competitive Visa/Mastercard/AMEX trio that would love to keep their fees artificially high.

jonknee 14y ago
There are plenty of costs though, operating global real time processing networks is not free.
vaksel 14y ago
there are actually a ton of costs for them. They have to pay for infrastructure, they have to pay for customer support, they have to pay for fraudulent transactions and on and on. I think most credit card companies have something like 10%-15% ROI
- armen52 14y ago
  Their fraud costs are not what you make them seem. The credit card companies do not take on the risk for fraud most of the time. They push that risk onto the merchants. This is why large e-commerce companies have giant fraud departments trying to prevent fraudulent orders and charges on their site; because when they occur, they generally just eat the loss.
  - Aleran 14y ago
    Actually the merchant is only liable for the loss if they did not follow all of the rules and regulations for processing the credit card. From wikipedia (http://en.wikipedia.org/wiki/Credit_card_fraud#Merchants http://en.wikipedia.org/wiki/Credit_card_fraud#Merchants): "The liability for the fraud is determined by the details of the transaction. If the merchant retrieved all the necessary pieces of information and followed all of the rules and regulations the financial institution would bear the liability for the fraud. If the merchant did not get all of the necessary information they would be required to return the funds to the financial institution. This is all determined through the credit card processory." From what I have seen, it is very common for the merchant to be liable for losses on a card not present transaction (e.g. online retail) but the credit card company stomaches the losses for a card present transaction. I suspect that online merchants could reduce their liability by implementing things like Verified by Visa but choose not to because it causes them to lose too many legitimate sales.
Firehed 14y ago
The networks get very little (IIRC a small flat fee per transaction on the order of 5 to 10 cents, but I don't have our pricing in front of me and it's some of the most opaque pricing you'll ever see) - most of interchange goes to the issuing bank. Blame the banks issuing credit cards for the high rates, not Visa and MC (both AmEx and Discover are, effectively, their own issuing banks - so go ahead and give them their fair share of the blame)
- sjtgraham 14y ago
  Interchange goes to Visa, MasterCard, et al not the issuing bank. This is their vig.
  - Firehed 14y ago
    Sorry, no. Fees are paid to the issuing bank, acquiring bank, and network. The majority of it goes to the issuing bank, and that's the non-negotiable rate when you get a merchant account. That fee is known as the interchange fee. The processing fee is something you negotiate with your gateway and/or acquiring bank. I work in the industry; it's my job to know how this works. Here is an example from Wikipedia (bear in mind the amounts are fictitious but relatively accurate): http://en.wikipedia.org/wiki/File:Gao-report-on-interchange.gif http://en.wikipedia.org/wiki/File:Gao-report-on-interchange....
    - sjtgraham 14y ago
      It's great to know that you work in the industry, but it's irrelevant; argumentum ad verecundiam is a logical fallacy and only serves to demean your argument. To address your point, I understand interchange as being set and collected by the card network, and is non-negotiable. Anything off the top is left for the banks to keep for themselves, e.g. the plus in "interchange plus" pricing). Another example assume a hypothetical interchange of 1.5% and a merchant that has a merchant account that costs 3.5% + 30¢ (gateway) per transaction. In this case the card network takes 1.5%, the gateway 30¢, and the banks 2%. Is this not how it works? It would be nice if you could cite something (not trying to be an ass in case it reads that way :).

by bgentry 14y ago

jonknee 14y ago

There are plenty of costs though, operating global real time processing networks is not free.

vaksel 14y ago

there are actually a ton of costs for them. They have to pay for infrastructure, they have to pay for customer support, they have to pay for fraudulent transactions and on and on. I think most credit card companies have something like 10%-15% ROI

armen52 14y ago
Their fraud costs are not what you make them seem. The credit card companies do not take on the risk for fraud most of the time. They push that risk onto the merchants. This is why large e-commerce companies have giant fraud departments trying to prevent fraudulent orders and charges on their site; because when they occur, they generally just eat the loss.
- Aleran 14y ago
  Actually the merchant is only liable for the loss if they did not follow all of the rules and regulations for processing the credit card. From wikipedia (http://en.wikipedia.org/wiki/Credit_card_fraud#Merchants http://en.wikipedia.org/wiki/Credit_card_fraud#Merchants): "The liability for the fraud is determined by the details of the transaction. If the merchant retrieved all the necessary pieces of information and followed all of the rules and regulations the financial institution would bear the liability for the fraud. If the merchant did not get all of the necessary information they would be required to return the funds to the financial institution. This is all determined through the credit card processory." From what I have seen, it is very common for the merchant to be liable for losses on a card not present transaction (e.g. online retail) but the credit card company stomaches the losses for a card present transaction. I suspect that online merchants could reduce their liability by implementing things like Verified by Visa but choose not to because it causes them to lose too many legitimate sales.

Firehed 14y ago

The networks get very little (IIRC a small flat fee per transaction on the order of 5 to 10 cents, but I don't have our pricing in front of me and it's some of the most opaque pricing you'll ever see) - most of interchange goes to the issuing bank. Blame the banks issuing credit cards for the high rates, not Visa and MC (both AmEx and Discover are, effectively, their own issuing banks - so go ahead and give them their fair share of the blame)

sjtgraham 14y ago
Interchange goes to Visa, MasterCard, et al not the issuing bank. This is their vig.
- Firehed 14y ago
  Sorry, no. Fees are paid to the issuing bank, acquiring bank, and network. The majority of it goes to the issuing bank, and that's the non-negotiable rate when you get a merchant account. That fee is known as the interchange fee. The processing fee is something you negotiate with your gateway and/or acquiring bank. I work in the industry; it's my job to know how this works. Here is an example from Wikipedia (bear in mind the amounts are fictitious but relatively accurate): http://en.wikipedia.org/wiki/File:Gao-report-on-interchange.gif http://en.wikipedia.org/wiki/File:Gao-report-on-interchange....
  - sjtgraham 14y ago
    It's great to know that you work in the industry, but it's irrelevant; argumentum ad verecundiam is a logical fallacy and only serves to demean your argument. To address your point, I understand interchange as being set and collected by the card network, and is non-negotiable. Anything off the top is left for the banks to keep for themselves, e.g. the plus in "interchange plus" pricing). Another example assume a hypothetical interchange of 1.5% and a merchant that has a merchant account that costs 3.5% + 30¢ (gateway) per transaction. In this case the card network takes 1.5%, the gateway 30¢, and the banks 2%. Is this not how it works? It would be nice if you could cite something (not trying to be an ass in case it reads that way :).