What does a credit card transaction actually cost?

[bPeteb]

Does anyone know what it actually cost a merchant to take payment by credit card?

If you read the news, apparently everyone is very happy that the ACCC finally grew some balls and demanded merchants stop charging unreasonable fees for payment by credit card.

Everyone doesn't include me. Sure if I book a domestic flight with QF I will/might pay less when I'm charged 1.3% but the international booking that we made last week, that cost $60, will cost $64 at 1.3% and the more the fare, the more you pay.

Is the problem not the merchant at all but the banks, or Mastercard, Visa, Amex and Diners?

Could someone please explain this to this financial illiterate?

 

[basso]

Re: What does a credit card transation actually cost?

If you read the news, apparently everyone is very happy that the ACCC finally grew some balls and demanded merchants stop charging unreasonable fees for payment by credit card.

It's not so much they grew balls, it's that they have been given power to do something. They had no role in enforcing it before.

 

[TomVexille]

Re: What does a credit card transation actually cost?

The actual number seems to be different depending on the deal offered to/negotiated by the merchant. I've heard a whole range on numbers from around 1 to 3%.

I'll be interested to see what some of the merchants here say (if they want to share).

 

[medhead]

Re: What does a credit card transation actually cost?

The RBA average costs are being widely reported today, and are stated in this story - to just one.
Ban on excessive credit card surcharging begins for large merchants

As a guide, the RBA has advised that the costs to merchants of accepting payments by debit cards is about 0.5 per cent, by credit card 1-1.5 per cent, and for American Express cards 2-3 per cent. However, some merchants' costs might be higher.

More interesting is the estimate at the end that it costs 2.5% to accept cash.

A 2014 discussion paper by the RBA argued that the cost of cash transactions for a merchant is about 2.5 per cent, in time and wages.

Everyone doesn't include me. Sure if I book a domestic flight with QF I will/might pay less when I'm charged 1.3% but the international booking that we made last week, that cost $60, will cost $64 at 1.3% and the more the fare, the more you pay.

Umm 1.3% of $60 is $0.78 - so total cost would be $60.78 not $64. The Qantas surcharge is capped at (I can't remember). There is a limit to how much will be paid.

 

[yohy?!]

Re: What does a credit card transation actually cost?

the problem is not how much it costs but that businesses use the true/fair cost of handling payment for their goods & services as an excuse to level additional fees on customers to increase their profits

something that in the majority of countries would simply not be accepted, sadly here we have begun to accept this as reasonable when in fact it should simply be down to businesses to wear these fees or lose our business

 

[medhead]

Re: What does a credit card transation actually cost?

the problem is not how much it costs but that businesses use the true/fair cost of handling payment for their goods & services as an excuse to level additional fees on customers to increase their profits

something that in the majority of countries would simply not be accepted, sadly here we have begun to accept this as reasonable when in fact it should simply be down to businesses to wear these fees or lose our business

The laws introduced today limit them to the direct cost of accepting payment. So while there is an estimated cost to business of 2.5% in accepting cash, there is no direct cost. For cards the direct cost would be limited to merchant fees and cost of processing equipment.

 

[Colin 2905]

Re: What does a credit card transation actually cost?

The actual number seems to be different depending on the deal offered to/negotiated by the merchant. I've heard a whole range on numbers from around 1 to 3%.

I'll be interested to see what some of the merchants here say (if they want to share).

Mrs 2905 is a small business owner, with a merchant facility. A friend of hers put her onto a broker a few years ago, who got her what I think is a good deal.......

EFTPOS: 10¢ + GST
Visa / MasterCard: 0.69% + GST

Terminal rental: $12 + GST per month
"Membership": $20 + GST per year

She doesn't charge her customers a surcharge for card payments.

Maybe we should put Qantas, Virgin and co. in touch with the same broker.

 

[JohnK]

Re: What does a credit card transation actually cost?

Well done to Mrs 2905.

Big business can easily absorb credit card fees. Even if it is as high as 3%. How about electricity? Payroll costs? Office lease? It's a cost of doing business. No need for any credit surcharges.

 

[UP4014]

Re: What does a credit card transation actually cost?

There would be the operational cost which might be as little as a few cents or less because of the volume then the set up costs for the whole network recoverable over time plus the man from the bank to deal with you and supply the equipment.

 

[Glider_]

Re: What does a credit card transation actually cost?

I find it hard to understand in a digital world how the real cost of the processing changes depending on the amount. If computers are taking care of essentially just moving 0's and 1's around, how does it cost ~1.5c for a $10 transaction and ~$150 for a $10,000 transaction? The infrastructure and programming is all the same?

 

[UP4014]

Re: What does a credit card transation actually cost?

I find it hard to understand in a digital world how the real cost of the processing changes depending on the amount. If computers are taking care of essentially just moving 0's and 1's around, how does it cost ~1.5c for a $10 transaction and ~$150 for a $10,000 transaction? The infrastructure and programming is all the same?

Plenty of people wanting a profit out of it isn't there.

 

[bPeteb]

Re: What does a credit card transation actually cost?

Umm 1.3% of $60 is $0.78 - so total cost would be $60.78 not $64. The Qantas surcharge is capped at (I can't remember). There is a limit to how much will be paid.

1.3% of cost of fare of $4900 is $63.70 isn't it? It's not of $60. Of the $8000+ of our last purchase it would be minimum $104. Has there been any detail of what capped amount will be?

 

[basso]

Re: What does a credit card transation actually cost?

Plenty of people wanting a profit out of it isn't there.

It's not so much about how much it costs to process - it's about how much the merchant is being charged. That is typically a percentage based thing

 

[Danger UXB]

Re: What does a credit card transation actually cost?

Hicaps terminal user here
VISA /MC 0.949% plus interchange fee of anything up to 2.2% for those infinite cards
NAB are not cheap but no one else deals with health funds GRRRRRR!!!!
Medical rate for AMEX is pretty good though 1.49% ... I think

 

[opusman]

Re: What does a credit card transation actually cost?

It's not so much they grew balls, it's that they have been given power to do something. They had no role in enforcing it before.

That definitely had a role in causing the problem in the first place, or are you forgetting whose great idea surcharging was anyway?

 

[JohnK]

Re: What does a credit card transation actually cost?

1.3% of cost of fare of $4900 is $63.70 isn't it? It's not of $60. Of the $8000+ of our last purchase it would be minimum $104. Has there been any detail of what capped amount will be?

The cap is $70.

Personally I don't think it's fair that someone pays $30 surcharge for a ~$500 airfare and pays the same surcharge as someone purchasing a ~$8000 airfare.

Now the surcharge on a $500 airfare will be $6.50 and surcharge on $8000 airfare will be $70 capped.

Much fairer but best if they sold the $500 airfare for $507 and did away with surcharges right?

 

[basso]

Re: What does a credit card transation actually cost?

That definitely had a role in causing the problem in the first place, or are you forgetting whose great idea surcharging was anyway?

I think you are forgetting. It wasn't the ACCC's idea.

 

[Moopere]

Re: What does a credit card transation actually cost?

I find the whole notion ridiculous tbh. Whats the logical end to this type of 'cost recovery'? We'll end up like the rental car market in australia, Administration cost recovery, insurance cost recovery, registration cost recovery, premium location cost recovery ... blah blah blah .... It all boils down to drip pricing and I'm sure is utilised as a way to advertise lower pricing than is actually available when one goes to pay. Its been said a myriad times before that accepting cash isn't free either, business has to pay, not directly perhaps, but certainly in holding, transferring to a bank and other internal employee related costs, to not even mention the risk of large cash holdings at the point of retail.

I never ever hit this in the USA and only very rarely in most of Asia.

 

[yohy?!]

Re: What does a credit card transation actually cost?

it would almost be best to outlaw surcharging altogether so that business are forced to just go to cash only if their margins are so tight they cannot afford to accept cards

that way it would be easy to just avoid them if they don't display card acceptance rather than the drip pricing/bait and switch that occurs online and in stores now.

 

[alexy23]

Re: What does a credit card transation actually cost?

It doesn't cost $12.50 per passenger, per direction that's for sure. If you want to know what it costs the Merchant's bank, i.e. Jetstars bank, this is a good guide:

https://www.mastercard.com.au/en-au/about-mastercard/what-we-do/interchange.html

https://www.visa.com.au/about-visa/interchange.html

Banks then basically use a Weighted Average based on your industry, or they just charge you what they paid to Visa/MC + base charge (their commission).

For instance, our online business gets 0.81% for Visa/MC. But I know in cafes and retail would be hard to get less than 1.5%. Government/Utilities get around 0.38% (which is where ATO Rate comes in). AMEX on the other hand "most" small merchants would be paying >2%.

On another note, in terms of how much a bank earns from cards, the interchange rates quoted above are what the cardholders bank will receive (after MC/Visa take their cut I guess).

Another thought for discussion - what does a cash transaction cost? It's something so many small businesses ignore (theft, time, storage, transport, human error). The rest of them ignore it on purpose in their pursuit for tax evasion.