Credit Card Merchant Fee Hikes Could Mean Higher Prices for Everyone
Credit card companies Visa, Mastercard, and Discover, will raise their processing fees in April, according to the Wall Street Journal. That’s likely to mean prices of everything will sneak up a bit, no matter how people pay.
The card networks authorize banks to issue credit cards to people. Separately, businesses get merchant accounts that let them present credit card transactions with their customers for payment. There are two types of fees on the rise. One is the interchange fee, set by the credit card networks. That is the percentage of a sale the bank that issued the credit card charges the merchant bank to handle the transaction. Then there is a fee the card networks charge for each transaction.
The business making a sale gets charged a merchant discount to the bank that processes its transactions, as Visa explains. That amount ranges up to nearly 3% of a sale, depending on the size of the business. When those costs rise, the merchants typically raise their prices a bit to cover the additional cost. That means no matter how consumers pay—credit card, check, or cash—they still are charged for the fee hikes.
In September 2018, the card networks settled an anti-trust lawsuit over these fees with a $6.2 billion payment.
The card networks, however, still manage to do well. Visa’s 2018 annual report shows revenue of $20.6 billion and net income, commonly known as profit, of $10.3 billion, or 50%. Mastercard’s 2018 report saw roughly $15 billion in revenue and net income of $5.9 billion, or 39%. Discover hasn’t released its 2018 annual report yet but the 2017 one showed $9.6 billion in revenue and net income of $2.1 billion, or 22%. And the net income or profit reports were after taxes.