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Table of Contents

Lead Story

Economic hang-ups: Will payments wilt?

News

Industry Update

Visa shoots for largest U.S. IPO ever

Vermont interchange bill a cry for help

Interchange act coming back stronger

TSYS joins the mobile fray

Data Treasury: Billions in the balance

Features

AgenTalkSM:
Jim McMahon

ATMs and a changing biz model

Travis K. Kircher
ATMmarketplace.com

Optio Solutions LLC. - Kinder, gentler collections

ISOMetrics:
Recessing, depressing economy

Views

Card stripes, prison stripes - security required

Biff Matthews
CardWare International

Education

Street SmartsSM:
Biting the ISO that feeds it

Dee Karawadra
Impact PaySystem

Shower candidates, grow your ISO

Curt Hensley
CSH Consulting Inc.

Secret's out: How to snag merchants

Maxwell Sinovoi
United Bank Card Inc.

PIN-ing profits

Scott Henry
VeriFone

Annihilate attrition

Jeff Fortney
Clearent LLC

Setting the stage for stupendous sales

Daniel Wadleigh
Marketing Consultant

Company Profile

Cutter LLC

New Products

Brand protection the Teleblock way

Teleblock Do-Not-Call Blocking System
Call Compliance Inc.

Software for streamlined processing

NitroSell
Company: NitroSell

Inspiration

Here comes the sun - and the dust pan

Miscellaneous

POScript

Departments

Forum

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

March 10, 2008  •  Issue 08:03:01

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Forum

Interchange for smarties

"Interchange for dummies," by Steven Feldshuh, which appeared in The Green Sheet on Oct. 8, 2007, issue 07:10:01, is not 100% accurate (to my knowledge). The first section states:

"Interchange is the wholesale price (also called discount rate, fee and variations thereof) charged by Visa U.S.A. and MasterCard Worldwide for authorization and settlement of a credit card transaction. For example, a merchant is charged 3.5% for each credit card transaction made at the merchant's store.

"If a customer makes a $10 credit card purchase, 3.5% of $10 is 35 cents. About 80% of that 35 cents (about 28 cents) goes to the issuing bank. The remaining 20% (7 cents) is divided among Visa or MasterCard, the processor and the merchant level salesperson (MLS), if there is one.

"So, if the card issuing bank makes 28 cents and Visa gets, say, 3 cents of the remaining 7 cents, then interchange would be 31 cents on that transaction."

But my understanding is a little different:

Interchange is the wholesale price charged by the Visa/MasterCard Associations. They remit those fees to the issuing bank as part of being a Visa or MasterCard card issuer. Dues and assessments are charged by Visa and MasterCard.

One hundred percent of interchange fees are paid to the issuing banks (and yes they get the annual percentage rate they charge to the customer who has the card as well); 100% of dues and assessments are paid to Visa and MasterCard. These dues and assessments are 0.095% for MasterCard and 0.0925% for Visa. There's also BASE I, BASE II and MasterCard INET, Visa ACQ and MasterCard ACQ surcharge and gateway fees - all fractions of pennies.

One hundred percent of any markup over interchange, dues and assessments are given to the processor. The percent allotted to the ISO is determined by your agreement with the processor; the percentage given to the merchant level salesperson is determined by your agreement with the ISO.

Visa and MasterCard don't receive any portion of interchange; they are associations of member banks. The member banks issue the cards, take all the risk, deal with all the customers and so forth. For all intents and purposes, Visa and MasterCard are just brands and marketing machines. But in order to incent the banks to issue the cards, MasterCard and Visa compete and pay the banks interchange for all transactions processed on those cards.

Here's an example of a $10 transaction:

Nicole Edwards
President
Vault Payment Solutions LLC

Nicole,

We were unable to reach Steven Feldshuh for comment; he is no longer with Tribul Merchant Services. On behalf of him and The Green Sheet, thank you for your clarification.

Editor

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