Things are “inter”changing and it’s great – II

Hey team,

Here’s a short follow-up to yesterday’s note re the interchange fees. I just reread it. It’s pretty boring. But it had to be said. Alternatively, I’ve put this together, which explains the below too.

Who Gets Charged/Who Pays
When you make a purchase on your credit card, your account is deducted the entire amount of the purchase. From that pool of money, your issuing bank receives its fee, the retailer’s banks receives its fee and of course the payment network receives its fee. The money remaining after paying all of these fees then lands in the retailers bank account. So essentially, when you buy anything on credit card, the business you are buying from actually receives less money than what you pay. The difference goes to the interchange fees.

So in the example from yesterday, whereas your turmeric almond soy skinny organic farm-fed latte cost you $5.50, Earthfoods R US actually only receives ~$5.39. The difference is split between the banks and the payment network, with your bank receiving ~9.6 cents, Earthfoods R US’s bank 0.3 cents and Visa 1.1 cents.

Put another way, Visa, MasterCard and Amex represent a cost to businesses. It costs them money to accept them as a form of payment (it also costs them when you use the EFTPOS payment network too fyi, however it is substantially less). Therefore these changes, in reducing the interchange fee represent a decrease in the cost of doing business for companies. This is a good thing. This should result in lower prices for you and me.

Yes, some companies have already been passing these costs directly on the consumer with their annoying surcharge for credit cards. However, some companies, including the major airlines have actually been passing on more than the interchange fees to the consumer. Using it as a bit of a profit stream. Sneaky f**kers. Well, this new legislation makes that practice illegal. Businesses can now only pass on the actual cost of the interchange fees and not a penny more. Again, this is a good thing, and should result in lower prices for you and for me and the entire human race. There are people dying, if you care enough for the living, make it place, for you and for me. Heal the world.

And back to your credit cards
Points have never been free. They are wonderful, I agree, and I know that receiving less of them is going to hurt in the short term, but again, the fact that the banks were/are able to give you so many of the damned things, should at least alert you that they must be earning something pretty substantial on the other side?

If you still want your points, get an Amex issued by American Express/David Jones. But beware, not all stores/businesses will accept those cards anymore. Those that do, are far more likely to be passing on the additional costs to you. Therefore, you cannot survive on just an Amex card, you will still need carry a Visa/MasterCard too. So you’re going to be paying two lots of annual fees. Something to think about.

Anyway, that’s 5 minutes. Hope it helped



Categories: General Finance

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