Interchange Analysis by the GAO

Visa and MasterCard Interchange rate schedules have become increasing more complex, as hundreds of different Interchange fee rate categories for accepting credit cards now exist.

In 1991, Visa and MasterCard each had 4 standard domestic credit card interchange fee rate categories. By 2009, Visa had 60 and MasterCard had 243 different rate categories that could be charged to card transactions, although not all of these rates apply to all merchants.

The increase in the number of rates occurred as different types of merchants and cards were added to their Interchange rate schedules. For example, the networks introduced new rates for certain industries that previously had not accepted cards (such as energy utility companies or government agencies) or for new methods of shopping (such as online purchases).

The NFIB Research Foundation’s National Small Business Poll of 750 small business owners found that merchants paid an average of 3.2% to accept American Express Cards and 2.5% for Discover cards, compared with the average of 2.3% for MasterCard and Visa (which included the interchange fee and acquiring costs).  Compare your Real Rate costs with other merchants in your same industry now.

Yet the GAO reports that American Express and Discover rates have not generated the same level of concern.

Apparently it is not just the Interchange rates themselves but the payment choices consumers are making that is cause for seeking regulation. The GAO report makes the point that market share plays a key role in the debate. American Express and Discover, with higher cost, are less widely used and therefore are not under the same scrutiny.

All the remedies proposed address reducing Interchange rates, not market share. The GAO study reviewed four proposals for reducing Interchange: (1) setting or limiting Interchange fees, (2) requiring disclosure of Interchange fees to consumers, (3) prohibiting card networks from imposing rules that limit steering customers’ payment choices and (4) granting antitrust waivers to allow merchants to collectively bargain for lower Interchange rates.

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