Who earns on CC processing?

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Curious123
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Who earns on CC processing?

Postby Curious123 » Mon Dec 28, 2015 7:49 pm

Hi.

I got simple question.

For example a merchant pays about 3% for processing US domestic CC transactions. Now I know that when you processing a transaction several entities are involved in this process, i.e.: MSP, CC network (Visa/MC etc), Authorize (they have small fees), Issuing bank and Acquiring bank (merchant's bank). So I wonder how all that entities share that 3% between them?

3% is an estimated processing fee in my example.


yfan
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Re: Who earns on CC processing?

Postby yfan » Tue Dec 29, 2015 1:21 am

The short answer is yes, they share it.

The somewhat longer answer is that in order to process a credit card transaction, there are at a minimum 3 types of parties involved. The bank that receives the payment, the bank that sends the payment, and the payment network. In case of an American Express card issued by Amex and Discover card issued by Discover, two of these three is the same entity. The merchant pays a fee to the bank that sends a payment and to the network.

Now other payment processors like Square - they are a middleman. They make that process streamlined. A merchant can just deal with them rather than each network and going through a rather cumbersome process of setting it up through their bank and dealing directly with the networks. So Square takes a cut, but that isn't part of the interchange fee.

takeshi
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Re: Who earns on CC processing?

Postby takeshi » Tue Dec 29, 2015 8:24 am

Curious123 wrote:So I wonder how all that entities share that 3% between them?

The split isn't the same for all situations. How it's split depends on the agreements in place.

Curious123
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Re: Who earns on CC processing?

Postby Curious123 » Tue Dec 29, 2015 8:35 am

Guys, thanks for a reply!

Can you provide some examples how 3% fee is split in real life?

Unfortunately I'm not familiar with AMEX, but it seems that there is no difference between AMEX and i.e. VISA/MC. I consider both as payment networks.

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Vattené
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Re: Who earns on CC processing?

Postby Vattené » Tue Dec 29, 2015 11:25 am

I don't know enough about it to provide much more information - just that it is complicated and varies by merchant based on the agreement into which they enter. I believe each card swipe has a flat fee plus a percentage of the transaction. Even for a given merchant, the fees going to a network will still vary by card. So a merchant will pay the least for MasterCard debit card transactions, more for credit card transactions, more still for World MasterCard transactions, and the most to World Elite MasterCard transactions.
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Vermonster
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Re: Who earns on CC processing?

Postby Vermonster » Tue Dec 29, 2015 11:40 am

Vattené wrote:I don't know enough about it to provide much more information - just that it is complicated and varies by merchant based on the agreement into which they enter.


This is pretty much why a company like Square can exist. It is a simple way for a business to process credit cards without having to deal with contracts and agreements.

Curious123 wrote:Can you provide some examples how 3% fee is split in real life?

As was mentioned before, the simplest way that 3% is split is between 3 parties. But it can be even more than that, or might not include payments to other parties such as a flat fee per swipe, percentage of the charge, or a monthly fee. Honestly, unless you have a very intimate understanding of a particular merchant, their agreement, and the sale, it is impossible to even take a guess.

Curious123 wrote:Unfortunately I'm not familiar with AMEX, but it seems that there is no difference between AMEX and i.e. VISA/MC. I consider both as payment networks.


Amex is a payment network, but they are also a bank. So they authorize the transaction and process it over their network. This is the same as Discover. Visa and MC are not banks themselves. There are thousands of banks worldwide that issue cards that utilize the Visa/MC payment network. For the end user it makes no difference. But for Amex, Discover, Visa, and MC there is a difference in how much money they get from a given transaction.
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CarefulBuilder14
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Re: Who earns on CC processing?

Postby CarefulBuilder14 » Tue Dec 29, 2015 1:24 pm

The fees vary, but I don't think they vary so much that we can't give an approximate answer.

In most cases, assuming a $20+ transaction, the issuing bank will get about 70%-85% of the total fees for a Visa/MC transaction. Other entities split the remaining 15%-30%.

If the transaction is smaller (like for $5), then the issuing bank will get a smaller percentage - but generally not below 50%.

More information than most people would want: http://www.cardfellow.com/credit-card-processing-fees/
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Curious123
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Re: Who earns on CC processing?

Postby Curious123 » Tue Dec 29, 2015 2:56 pm

CarefulBuilder14 wrote:In most cases, assuming a $20+ transaction, the issuing bank will get about 70%-85% of the total fees for a Visa/MC transaction. Other entities split the remaining 15%-30%.If the transaction is smaller (like for $5), then the issuing bank will get a smaller percentage - but generally not below 50%.


Thank you. That is really interesting that issuers (banks who issue cardholder's card) take most of that fees.

It even explains why some banks offer high cashback like 2%.



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