Other Credit Card Programs - Credit Card Interchange Fees and Reward Cards

There's an article in BusinessWeek about credit card interchange fees. (See below.) It mentions a 0.5% charge to merchants for the use of a credit card.

I thought it was much higher than that (around 2.5%)? Does that mean banks are losing money on rewards programs (doubt it).

Just curious if someone could shed light on the actual merchant fees and if the interchange fee differs from the merchant fees.

http://www.businessweek.com/magazine/content/09_45/b4154060762865.htm

The article mentions costs, which amount to roughly 1.6% of every transaction,. The reference to 0.5% is in Australia ... In 2003 the country's regulators cut the average interchange fee to around 0.5% of the total bill, from 1%

Remember, those are average rates, not the rates charged when a consumer uses a rewards card. The article mentions this, without any quantification: Australian card companies generally levied a higher interchange fee on rewards cards to cover the added cost of the perks—as they do in the U.S.

Wirelessly posted (Vodafone/1.0/HTC_diamond/1.37.163.4/Mozilla/4.0 (compatible; MSIE 6.0; Windows CE; IEMobile 8.12; MSIEMobile 6.0) UP.Link/6.3.1.17.0)

don't forget that some people actually do pay the high APR on balances.

IMHO, the US rewards cards are heavily funded by the interchange rip-off rates applied by the card companies.

Other countries (France, Australia) keep the rates down to benefit merchants and the general economy and to encourage card use--which makes it easier to be sure that retailers are paying their taxes.

US rates are out of control and will be chopped in the near future.

There is a reason for the class actions suits by merchants against the card companies over interchange.

Of course, I have benefited for years from the overcharges which have financed many J and F trips overseas paid for, pretty much, by the unfair system of the card companies which costs merchants and less-knowledgable card users up the ying-yang. I love my miles. :D But, I know it ain't fair that I get 'em at others expense.

IMHO, the US rewards cards are heavily funded by the interchange rip-off rates applied by the card companies.

Other countries (France, Australia) keep the rates down to benefit merchants and the general economy and to encourage card use--which makes it easier to be sure that retailers are paying their taxes.

US rates are out of control and will be chopped in the near future.

There is a reason for the class actions suits by merchants against the card companies over interchange.

Of course, I have benefited for years from the overcharges which have financed many J and F trips overseas paid for, pretty much, by the unfair system of the card companies which costs merchants and less-knowledgable card users up the ying-yang. I love my miles. :D But, I know it ain't fair that I get 'em at others expense.

"Rip off" Interchange fees of 1.6% are funding it? What about the APRs of 14-20%? What about the Annual fees of $85-450?

So companies like Schwab can pay 2% cash back because of consumers carrying a balance (since they aren't collecting enough from interchange fees). Somehow I don't picture a large portion of Schwab customers carrying balances. Maybe I'm wrong.

So companies like Schwab can pay 2% cash back because of consumers carrying a balance (since they aren't collecting enough from interchange fees). Somehow I don't picture a large portion of Schwab customers carrying balances. Maybe I'm wrong.

Which corresponds with the rumors that they are pulling back from the product.

Schwab... (since they aren't collecting enough from interchange fees).

I agree that Schwab's 2% cashback is unsustainable unless it has attracted a substantial amount of new investment money. However, I would guess that Bank of America collects enough in interchange fees to cover 2%, there's just not enough for a profitable split with Schwab.

I agree that Schwab's 2% cashback is unsustainable unless it has attracted a substantial amount of new investment money. However, I would guess that Bank of America collects enough in interchange fees to cover 2%, there's just not enough for a profitable split with Schwab.

Even if it did attract new money to Schwab, something tells me that at the end of the day the 2% card will need to stand alone on its own merits, as that an influx of new money would be attributed to something else, or soon forgotten by their management team.

I believe a more likely scenario is that they thought they were going to get a higher proportion of revolvers in their customer base, but the revolvers never showed up due to BofA/FIA's tightened lending standards.

I've got a 6 month old Schawb card and have not given them new money on the investment side, or revolved a balance. I don't think I'm atypical.

Even if it did attract new money to Schwab, something tells me that at the end of the day the 2% card will need to stand alone on its own merits, as that an influx of new money would be attributed to something else, or soon forgotten by their management team.

I believe a more likely scenario is that they thought they were going to get a higher proportion of revolvers in their customer base, but the revolvers never showed up due to BofA/FIA's tightened lending standards.

I've got a 6 month old Schawb card and have not given them new money on the investment side, or revolved a balance. I don't think I'm atypical.

Same here. If their system is not so antiquated, I would have moved some money from Fido to them. However, the inability to do many things online the same way as with Fidelity, really offers no enticement for me to move assets to them.