{"id":539,"date":"2013-10-03T11:47:35","date_gmt":"2013-10-03T15:47:35","guid":{"rendered":"http:\/\/www.nationaltransaction.com\/credit-card-merchant\/?p=539"},"modified":"2023-03-29T12:53:24","modified_gmt":"2023-03-29T16:53:24","slug":"how-a-typical-credit-card-transaction-works-and-how-credit-card-fees-work-for-merchants","status":"publish","type":"post","link":"https:\/\/www.nationaltransaction.com\/credit-card-merchant\/how-a-typical-credit-card-transaction-works-and-how-credit-card-fees-work-for-merchants\/","title":{"rendered":"How A Typical Credit Card Transaction Works and How Credit Card Fees Work for Merchants"},"content":{"rendered":"
\"Electronic<\/a>

Credit: Flickr<\/a><\/p><\/div>\n

Here\u2019s how typical credit card transaction works:
\n<\/strong>When a consumer pays with a credit card, the merchant sends the details of the transaction along with the credit card information to the merchant\u2019s bank. The merchant\u2019s bank forwards the information to the cardholder\u2019s bank for approval.\u00a0If approved, the cardholder\u2019s bank sends the required amount to the merchant\u2019s bank, minus the merchant discount rate.\u00a0The credit card companies don\u2019t receive any revenue directly from interchange rates. Instead they make their money by charging the banks fees for networks, transactions and other kinds of services.<\/p>\n

Up until April 2008, interchange rates were simple and inflexible. At that point, the company decided to move to a more dynamic system.<\/p>\n

Interchange rates now vary from card to card, depending on the types of services and incentives offered. Typically, premium cards, which come with rewards for things like travel, cost merchants more to process.\u00a0The rates also vary by type of transaction, and even by type of retailer. At times, the card companies have, for example, set special rates for grocery and gas retailers in a bid to boost credit-card use in locations where cash and debit traditionally dominated.\u00a0The card companies have also introduced a growing number of premium and even super-premium cards that cost merchants more to process. The cards appeal to consumers because they contain a number of attractive incentives, such as travel and other rewards.\u00a0The changes in the rate structure followed a change in the credit card companies\u2019 business model in the mid 2000s.<\/p>\n

Visa and MasterCard evolved from private associations owned mainly by the banks they serviced to publicly traded, profit-driven entities beholden to a wide range of shareholders.\u00a0Merchants say the fees they pay to accept credit cards are rising as a result and have become increasingly unpredictable.\u00a0Critics of the credit card companies say the merchant is a powerless middleman in a system that entices consumers to use their cards and banks to reap the benefits.<\/p>\n

The credit card companies say the system benefits everyone, including merchants, by providing a rapid, secure form of payment.<\/p>\n

Every time you use your credit card to make a purchase, the merchant pays what is called the \u201cmerchant discount fee.\u201d The merchant discount fee is calculated as a percentage of the good or service purchased. It can range from 1.5 per cent to 3 per cent. On a $100 item, for example, the merchant could pay a fee of between $1.50 and $3.The merchant discount fee covers a number of things, such as terminal rentals, fraud protection and transaction slips. But the biggest component of it is based on the interchange rate, which is set by the credit card companies.<\/p>\n

In a complicated twist, the credit card companies don\u2019t make any money from the interchange rate. The banks do.\u00a0The interchange rate is what makes the credit card system work. \u00a0This rate ensures the banks have a financial incentive to issue and accept credit cards.<\/p>\n","protected":false},"excerpt":{"rendered":"

Here\u2019s how typical credit card transaction works: When a consumer pays with a credit card, the merchant sends the details<\/p>\n

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