Visa and MasterCard Interchange Fees Rise

WASHINGTON, D.C. - A steady string of increases in Visa and MasterCard interchange fees is driving up costs for consumers, and another increase is scheduled to go into effect today, according to the National Retail Federation.

"This is a hidden tax increase for American consumers," said Mallory Duncan, NRF senior vice president and general counsel. "When Visa and MasterCard arbitrarily increase the fees charged to merchants, those costs are forced into the price of merchandise, and consumers are the ones who end up paying.

"Interchange is out of control," Duncan said. "Credit card companies have become more than greedy, and are using these fees to increase their own profits far more than to provide any legitimate service to retailers or consumers. Retailers are seriously looking at their alternatives. Banks are on the verge of killing the goose that laid the golden egg."

Both Visa and MasterCard have announced interchange increases that are scheduled to take effect April 1. An average is difficult to calculate because of the complicated fee structure, but the increases range from 2.7 percent for Visa Consumer Standard Credit to 9 percent or more on typical retail purchases for MasterCard Corporate Face-to-Face transactions, according to NRF.

In addition, some transactions are being moved into new categories, having the effect of a rate increase for merchants even where published rates are unchanged. Fees for a few categories of transactions will decrease slightly, but most will increase.

The April increases are part of a long-term trend in rising interchange rates. A recent Morgan Stanley report found that the weighted average for Visa and MasterCard interchange had increased from 1.58 percent in 1998 to 1.75 percent in 2004, and is forecast to grow to 1.86 percent in 2010. Dollar volume has grown from $9.4 billion in 1998 to $17.4 billion and is projected to reach $32.4 billion in 2010, NRF reported.

Interchange is a percentage of each transaction -- sometimes accompanied by a flat fee -- that banks collect from retailers every time a credit card or debit card is used to pay for a purchase, adding up to billions of dollars each year. Concern over rising interchange rates has risen to the level that the Federal Reserve Bank of Kansas City has scheduled a conference on the issue to be held in May.

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