Credit Cards

[ace9848]

I assume that credit card companies get a fee, either a flat rate or a percentage, per transaction from the vendors for each transaction. Does anybody know how it works? What percentage, etc...?

As credit card companies with rewards programs actually lose money unless you carry a balance, and many don't, I assume they have to be making money off of the vendor. Am I right?

Just knowing the whole picture will help me understand how they operate, and make better decisions.

Thanks.

[fender]

The commission is often a percentage of the transaction amount, plus a fixed fee.  If I had to guess I would say $1 authorization fee, then a 2% surcharge.  But it varys with different ccc.

[FretlessMayhem]

I read an article somewhere that Visa/MC charge 1.7 percent for credit, and 1.2 percent for debit transactions, Amex is 2.4-ish percent, and Discover was close to 4 percent.

I think that's the big reason some places don't take Amex or Discover.

[haulingthescoreup]

This is why the good CCC's will keep you and give you CLI's, even if you never carry a balance and get rewards: if you use the card enough, they're making enough money off of you through transaction fees that they're willing to keep paying rewards and forego any profit from APR's and fees.

You'll hear a lot of cynics say that you have to carry balances and so forth to get some luv from CCC's, and that might well be true of store cards and some of the less-than-prime bank cards, but I've never found that to be true of CU cards and the big bank cards (American Express, Discover, citi, Chase, BofA, etc.)

There are lots of different ways for CCC's to make money off of us consumers. I like the win-win ways!

[FretlessMayhem]

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haulingthescoreup wrote:
This is why the good CCC's will keep you and give you CLI's, even if you never carry a balance and get rewards: if you use the card enough, they're making enough money off of you through transaction fees that they're willing to keep paying rewards and forego any profit from APR's and fees.

You'll hear a lot of cynics say that you have to carry balances and so forth to get some luv from CCC's, and that might well be true of store cards and some of the less-than-prime bank cards, but I've never found that to be true of CU cards and the big bank cards (American Express, Discover, citi, Chase, BofA, etc.)

There are lots of different ways for CCC's to make money off of us consumers. I like the win-win ways!

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Heck, Amex and Chase get nervous when you carry balances.

[techno-pagan]

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FretlessMayhem wrote:
I read an article somewhere that Visa/MC charge 1.7 percent for credit, and 1.2 percent for debit transactions, Amex is 2.4-ish percent, and Discover was close to 4 percent.

I think that's the big reason some places don't take Amex or Discover.

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It is actually a little more complicated.  A merchant uses a bank to process ALL of their credit card transactions - and the bank charges a rate based on a number of things like total transaction $$, transaction risk ("card not present" vs an in person transaction), etc.

For instance the company I work for uses Bank of America - BoA processes all CC transactions (Visa, MC, Discover, Amex) and then "settles" with the actual card issuer (via the Visa, MC or Discover or Amex network) - the "network" charges the merchant bank (BoA) a certain % - and they in turn add their fee and pass it along to the merchant.

So the % charged by the network is likely fixed - but the banks can vary (from bank to bank and merchant to merchant).

We are actually in the process of switching away from BoA to another processor to save a few 10ths of a percent - which can work out to boat load of $$$ depending on the total amount processed.

[fender]

"transaction risk ("card not present" vs an in person transaction), etc."

how can that be true, the bank sees it the same either way, the cashier types the account number in, would be the same as a cards magnetic strip not working.

Message Edited by fender on 05-11-2008 10:26 AM

[techno-pagan]

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fender wrote:

"transaction risk ("card not present" vs an in person transaction), etc."

how can that be true, the bank sees it the same either way, the cashier types the account number in, would be the same as a cards magnetic strip not working.

Message Edited by fender on 05-11-2008 10:26 AM

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It has to do with the terminal - a retail POS vs an Internet gateway.

[krystofur]

Not sure if this is exactly what you are looking for, but it's a start.

http://en.wikipedia.org/wiki/Interchange_fee

This link caught my eye as a good example of how diverse these fees can be.  Check out the pdf on this page.

http://usa.visa.com/merchants/operations/interchange_rates.html

I don't have time to read this whole paper yet, but I've always wondered what the post office was thinking when I charge a less then $2.00 postage purchase on my CC.

http://www.rnejournal.com/articles/hayashi_march06.pdf

Message Edited by krystofur on 05-11-2008 10:47 AM

Message Edited by krystofur on 05-11-2008 10:49 AM

Message Edited by krystofur on 05-11-2008 10:52 AM