The Truth about Traditional Payments

Nothing ever is free. Think about whenever you get a card for free from the bank and immediately you go to get it. After one year, you get a surprise, “Congratulations, you need to pay $100 as card maintenance charges, something which you never opted for.”  The reward points you get on your credit and debit card, the convenience of not having to carry a lot of cash, purchase protection and many other perks which you are told. These are the services provided to you as they say it. But it’s a fact that you pay for all of them in terms of an annual fee or interest payments, but a large portion of them are financed by merchants. In the form of interchange fees which is also called as “swipe fees”.  Merchants pay these fees, but ultimately they are passed on to us in form of high prices.

The Swipe Journey

When you buy goods and services using your credit or debit card. The merchant is charged a fees of 1% to 3% and some of them even get charged upto 5% of what you’ve bought using the card. This fees may seem a little high, but the banks and payment processing companies such as visa and Mastercard, argue that the merchants is paid right away, but it most likely takes a minimum of 30 days before the credit card companies receive your payments. The interest you pay for holding that balance is what pays those fees to the merchants but that’s never enough. 

Merchants lose more than they could have gained.

Truth from the Stats

In 2017, merchants paid Visa and Mastercard $43.4 Billion in swipe fees - up from $25.9 Billion in 2012. The fees which have averaged to 23 cents from then on every transaction. For every $100 you spend, $4 goes to the credit card companies, even if you paid in cash.

In 2016, for the first time ever, the swipe fees exceeded the amount customers paid in overdraft fees: $33.3 Billion to $33.8 Billion.

The swipe fees is supposed to cover the cost of processing the credit card payments. As the merchants put their blind trust on these payments processing “services” with agreement that contained no verifiable data, allowing plenty of opportunities for merchants to get scammed.

Class Action Law Suits on Payment Providers

Blind trust on these payment providers resulted in collusion by these payment providers which consisted of Visa, Mastercard and some of the larger issuing banks as Artifically high swipe fees were being put on the merchants. This case was settled out in the court as the defendant agreed to pay $6.5 Billion.

The Credit Card issuing banks argue that swipe fees serve the merchants by offering certain protections and instant payment, while merchants feel that these fee is way too high. While what remains is that, this fee is passed on to the customers when they swipe or chip their cards.