September 6th, 2006 by Jamie Estep
Mastercard to publish interchange rates
Mastercard has been going through some internal changes since its IPO a few months ago. Just yesterday they released a press release titled: MasterCard Announces Interchange Initiatives Aimed At Maximizing the Value of MasterCard Card Acceptance.
Purchase, NY, September 05, 2006 – MasterCard Worldwide announced today that it will soon implement significant interchange initiatives aimed at addressing concerns that have been raised by the merchant community, and helping them maximize the benefits and value of accepting MasterCard cards.
Now while this may seem like a genuine act of goodwill to the businesses that accept Mastercard, I can only see a negative affect from this new policy.
Why would publishing interchange be negative?
Essentially what Mastercard is doing by publishing interchange is placing all of the weight of high processing fees on the Merchant Service Providers, or even more appropriately they are attempting to remove the blame from themselves. Even though merchant service providers only take home about 5% of the fees that businesses pay to accept credit cards, it is the common belief that they are getting the whole check. See the post: Merchant Account Fees, Credit Card Interchange – Who are you really paying?, for more information on where the money is going.
Now a business sees the credit card interchange fee schedule for their business type. It states something like: 1.39%, and they think, oh, why am I paying 1.71% if they only have to charge 1.39%? The business doesn’t fully understand the industry and as a result, they think they are being ripped off. The next thing that happens is a huge surge in complaints and negative feedback against the merchant service providers, ISOs, and banks who actually have to charge 1.68% just to break even. Since interchange is the same for everyone, this percentage is pretty much the same across the board. Mastercard has effectively removed their own accountability for high processing fees, and placed it on the businesses that provide services for them. Even though they are the deciding factor in credit card interchange, they place the blame on the companies that are reselling their services. In no way are they fixing any problem. They aren’t going to lower interchange, and as a result, nothing at all is going to change except consumer satisfaction.
Now, I know that this sounds completely biased but the simple fact is, unless Mastercard decides to lower interchange, nothing at all is going to change. I would absolutely love to be able to provide merchant accounts at .1% or lower. But as long as interchange is where it is, businesses will never see prices drop.
The humor that I see in this situation is that Mastercard interchange is about .09 – .1% higher than Visa for just about every business type. They have by far the highest interchange fees, and they are the ones who are going to show everyone. Mastercard is providing a perfect example of what not to do when your company goes public!