Interest rates

[davelj]

[quote=JustLurking]Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.
[/quote]

My use of the word “processor” with respect to Visa and MC was lazy and incorrect. Also, while I knew that these fees were split between the issuer, merchant processor and credit card associations (the correct word, obviously), I gotta say that I didn’t realize how little went to the associations. I thought it was more like half of the total.

Having said that, assuming a 150 bps average interchange fee, after paying the association and the merchant processors (the companies that actually process the transactions), I’d bet there isn’t more than 100 bps left for the issuing bank (although that’s more than I would have thought). So, assuming a 20% average credit card rate, another 1% – while helpful – isn’t where the profit is.

But, clearly, I was wrong about the breakdown of how much of the interchange fee went to which party. Won’t be the last time…

Thanks for providing clarity on this issue. While I don’t work with banks that issue credit cards, I should know more about the basics of credit card transactions.

[davelj]

[quote=4plexowner]all about risk / reward – already rich – don’t need to take stupid risks

[/quote]

Internet Axiom No. 163:

Anonymity + Claims of Riches = Convenient

[davelj]

[quote=4plexowner]all about risk / reward – already rich – don’t need to take stupid risks

[/quote]

Internet Axiom No. 163:

Anonymity + Claims of Riches = Convenient

[davelj]

[quote=4plexowner]all about risk / reward – already rich – don’t need to take stupid risks

[/quote]

Internet Axiom No. 163:

Anonymity + Claims of Riches = Convenient

[davelj]

[quote=4plexowner]all about risk / reward – already rich – don’t need to take stupid risks

[/quote]

Internet Axiom No. 163:

Anonymity + Claims of Riches = Convenient

[davelj]

[quote=4plexowner]all about risk / reward – already rich – don’t need to take stupid risks

[/quote]

Internet Axiom No. 163:

Anonymity + Claims of Riches = Convenient

[patientrenter]

[quote=peterb]In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.

In delfation, keeping the cash turns out to often be the best “investment” of all.[/quote]

peterb, isn’t 3% down the most common payment on new purchases now? I am excluding people who are buying with prior home gains. For those folks, they are just “playing with their winnings”. Not rational, but that’s how they think.

[patientrenter]

[quote=peterb]In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.

In delfation, keeping the cash turns out to often be the best “investment” of all.[/quote]

peterb, isn’t 3% down the most common payment on new purchases now? I am excluding people who are buying with prior home gains. For those folks, they are just “playing with their winnings”. Not rational, but that’s how they think.

[patientrenter]

[quote=peterb]In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.

In delfation, keeping the cash turns out to often be the best “investment” of all.[/quote]

peterb, isn’t 3% down the most common payment on new purchases now? I am excluding people who are buying with prior home gains. For those folks, they are just “playing with their winnings”. Not rational, but that’s how they think.

[patientrenter]

[quote=peterb]In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.

In delfation, keeping the cash turns out to often be the best “investment” of all.[/quote]

peterb, isn’t 3% down the most common payment on new purchases now? I am excluding people who are buying with prior home gains. For those folks, they are just “playing with their winnings”. Not rational, but that’s how they think.

[patientrenter]

[quote=peterb]In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.

In delfation, keeping the cash turns out to often be the best “investment” of all.[/quote]

peterb, isn’t 3% down the most common payment on new purchases now? I am excluding people who are buying with prior home gains. For those folks, they are just “playing with their winnings”. Not rational, but that’s how they think.

[davelj]

justlurking,

I found this snippet on the breakdown of interchange fees and who gets what (in case you’re interested):

************************
“Here is an example of the fees associated with a typical Visa Retail transaction a merchant may process and how these fees are distributed to the various parties involved:

* If we assume a Discount Rate for a Merchant of 1.65% + $0.15 Transaction Fee, then for a $100 Visa charge the amount the Merchant would pay their Merchant Services Provider will be $1.80.
* This is divided up as follows:
o Visa and Issuing Bank split the Interchange Rate of 1.25% + $0.10, or $1.35
o Merchant Services Provider and Processor split the .40% + $0.05 mark-up, or $0.45”

***************************

So, it looks like in a typical Visa transaction, 62.5 bps goes to the card issuer, 62.5 basis points goes to Visa (that looks high relative to your numbers, but I don’t know), and 45 bps goes to the merchant services provider and processor (I don’t know what the difference is between the two, frankly). That seems more in line with how I originally thought things broke out. But, again, I don’t know – I just found these numbers after a quick search. They could be wrong.

[davelj]

justlurking,

I found this snippet on the breakdown of interchange fees and who gets what (in case you’re interested):

************************
“Here is an example of the fees associated with a typical Visa Retail transaction a merchant may process and how these fees are distributed to the various parties involved:

* If we assume a Discount Rate for a Merchant of 1.65% + $0.15 Transaction Fee, then for a $100 Visa charge the amount the Merchant would pay their Merchant Services Provider will be $1.80.
* This is divided up as follows:
o Visa and Issuing Bank split the Interchange Rate of 1.25% + $0.10, or $1.35
o Merchant Services Provider and Processor split the .40% + $0.05 mark-up, or $0.45”

***************************

So, it looks like in a typical Visa transaction, 62.5 bps goes to the card issuer, 62.5 basis points goes to Visa (that looks high relative to your numbers, but I don’t know), and 45 bps goes to the merchant services provider and processor (I don’t know what the difference is between the two, frankly). That seems more in line with how I originally thought things broke out. But, again, I don’t know – I just found these numbers after a quick search. They could be wrong.

[davelj]

justlurking,

I found this snippet on the breakdown of interchange fees and who gets what (in case you’re interested):

************************
“Here is an example of the fees associated with a typical Visa Retail transaction a merchant may process and how these fees are distributed to the various parties involved:

* If we assume a Discount Rate for a Merchant of 1.65% + $0.15 Transaction Fee, then for a $100 Visa charge the amount the Merchant would pay their Merchant Services Provider will be $1.80.
* This is divided up as follows:
o Visa and Issuing Bank split the Interchange Rate of 1.25% + $0.10, or $1.35
o Merchant Services Provider and Processor split the .40% + $0.05 mark-up, or $0.45”

***************************

So, it looks like in a typical Visa transaction, 62.5 bps goes to the card issuer, 62.5 basis points goes to Visa (that looks high relative to your numbers, but I don’t know), and 45 bps goes to the merchant services provider and processor (I don’t know what the difference is between the two, frankly). That seems more in line with how I originally thought things broke out. But, again, I don’t know – I just found these numbers after a quick search. They could be wrong.

[davelj]

justlurking,

I found this snippet on the breakdown of interchange fees and who gets what (in case you’re interested):

************************
“Here is an example of the fees associated with a typical Visa Retail transaction a merchant may process and how these fees are distributed to the various parties involved:

* If we assume a Discount Rate for a Merchant of 1.65% + $0.15 Transaction Fee, then for a $100 Visa charge the amount the Merchant would pay their Merchant Services Provider will be $1.80.
* This is divided up as follows:
o Visa and Issuing Bank split the Interchange Rate of 1.25% + $0.10, or $1.35
o Merchant Services Provider and Processor split the .40% + $0.05 mark-up, or $0.45”

***************************

So, it looks like in a typical Visa transaction, 62.5 bps goes to the card issuer, 62.5 basis points goes to Visa (that looks high relative to your numbers, but I don’t know), and 45 bps goes to the merchant services provider and processor (I don’t know what the difference is between the two, frankly). That seems more in line with how I originally thought things broke out. But, again, I don’t know – I just found these numbers after a quick search. They could be wrong.

[Author]

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