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Comment by dangrossman | Hacker News Reader

American merchants are paying 0.05%+$0.22 for debit and check cards, and the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles. Non-reward credit cards and gift cards start at 0.65% in interchange fees otherwise.

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> the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles

What percentage of credit cards in the U.S. and Canada pay 1-2% in cash back or have reward points/miles? If the answer is most credit cards, then it seems to follow that merchants are being charged 2-3% for most transactions. Or am I missing something here?

Furthermore, I don't believe that merchants are allowed to pick and choose which credit cards they'll accept based on the fees. That is, if a merchant says that they take Mastercard, they have to take any brand of Mastercard. They can't refuse a Mastercard that gives cash back (and how could they even tell at the time of the transaction anyway?).

There are different types of card that have different fees, like Visa Signature or MasterCard World. These usually have rewards. However, it seems like most credit cards I've seen (at least in the tier I've considered) have 1% CB or equivalent at the least, even without being Signature or World.

There were class action lawsuits in both Canada and the US over the anti-competitive nature of the agreements merchants had to enter into. I can't remember all the details, but in the US merchants rights to charge consumers higher prices or fees for using rewards cards was confirmed. But I've never seen a merchant actually doing this online.

I believe either VISA or MasterCard - likely both - have rules against charging any additional fees when paying with their cards as a merchant, with the implicit threat of them pulling their services and leaving you unable to process cards if you don't follow said rules.

The typical workaround, which isn't against their rules, is to offer a discount for paying in cash - I can't recall the last gas station I saw that didn't do this (for gas at least), and a number of restaurants also offer cash discounts.

The reason for offering a discount for paying in cash is probably that most clients would get angry if merchants tried to charge them more for using a credit card while they are always happy when they get a discount for paying in cash. I think the credit card processors are smart enough to realise that this is happening, so if they wanted & could do anything about it, they would probably write their terms differently (cca. "prices for payments in cash and with cards must be equal").

Plenty of places demand a minimum payment for credit card transactions, with an additional fee in lieu of that.

In the UK, a majority of bars and corner shops will have a 50p charge for card use below a certain threshold or even refuse to take payment.

They do, but they shouldn't. Both MasterCard and VISA explicitly prohibit this practice in their terms.

In the past I've just offered hesitant merchants 50 cents extra. Probably only works when the merchant also owns the business though.

That used to be the case, but as stated by the above poster, it is no longer the case due to a lawsuit a few years ago.

If they do, they aren't enforcing it at all in new Zealand, where a 2% surchage for credit cards is fast becoming the norm.

Cash can often be used to fiddle the accounts too ... which also leads to a cash preference for some.

Before there was the class action, the US Justice Department sued. Visa and MasterCard settled.[1] The settlement required those companies to allow merchants to "steer" customers to less expensive cards with with discounts and incentives. Not that this agreement didn't override state laws which prohibit that practice. AMEX choose to go to trial, lost, and the case is currently on appeal at the Second Circuit (the judgment stayed).[2]

The class action lawsuit was settled in principle back in 2012 and approved by the district court in 2013, but was thrown out recently by the Second Circuit.[3] It would have been the largest class action settlement in history, but many large merchants objected to being bound by a settlement that they had no part in negotiating.

[1] http://www.lexology.com/library/detail.aspx?g=a2722e0c-e0a6-...

[2] http://www.reuters.com/article/us-american-express-antitrust...

[3]http://www.wsj.com/articles/visa-mastercard-class-action-set...

>US merchants rights to charge consumers higher prices or fees for using rewards cards was confirmed.

This is illegal in ten states: http://www.creditcards.com/credit-card-news/credit-card-conv...

That's oversimplifying a lot. All of Visa's current interchange rates are listed here: https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in... (of course the other networks have their own rates)

But that's just interchange (the amount paid to the issuer); merchants also pay a network fee and usually additional fees to their acquirer.

Not a lot, just a little. Pages 1-2 are just title pages. Page 3-6 every row shows 0.05%+$0.22, because those are all types of debit cards. Page 7-8 are the ones that apply to swiping a credit card, and only 3 of those rows account for what we're talking about here: retail/supermarket/restaurant. In those rows, we have 4 columns that correspond to how many rewards the cards pay back to the consumer. They max out at 2.4% for any brand's variety of Visa Signature Preferred card, which pay up to 2% cash back.

Yep. This low debit fee is due to the durbin amendment (https://en.wikipedia.org/wiki/Durbin_amendment), which is generally how Stripe makes most of its money AFAIK. Stripe still charges the % and takes the remainder.

> the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles. Non-reward credit cards and gift cards start at 0.65% in interchange fees otherwise.

Those differences in credit card fees between rewards and non-rewards often aren't being passed on to the merchant, though, especially small businesses who have little room to negotiate.

I'm a small business merchant, and they're passed on to me. I pay interchange plus 0.04%. If interchange on a specific transaction is 0.05% then I pay 0.09%. If it's 2.9% then I pay 2.94%.

Merchant service providers have been pushing this "interchange-plus" pricing model to win over businesses from other providers with the old "tiered rates" pricing for many years now. Even "tiered rates" did pass on some of the price differences, just not as directly.

PayPal/Stripe's model of a single flat fee for all card types is pretty much exclusively an internet (card-not-present) thing, except for the rare coffee shop with one of those Square smartphone dongles. None of the B&M stores you shop in are likely paying flat rates. Different cards cost them different amounts of money.

Who's your merchant services provider?

I wonder if he meant "passed on _by_ the merchant", as in, it's not like any business will give non-rewards-card-payers a discount.

Small correction: visa/mc interchange is 1.2-2.4% + 5-10 cents.[1] And that's what banks get to work with in terms of paying out rewards. It's processors that mark up the rates higher... And that can increase what merchants pay for debit as well.

The biggest merchant ripoff going on right now are processors that charge the same rate for debit and credit. If more merchants knew how cheap debit can be there might be more steering.

[1] https://usa.visa.com/dam/VCOM/download/merchants/Visa-USA-In...

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