AFP Publications

A Corporate Guide to Card Payments and the Role of Interchange Members: $49.50 Non-Members: $69.50 Format: E-Document

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Summary

Managing the cost of accepting card payments is an increasingly important issue for merchants because of growing card volumes, increasing interchange rates and complex fee structures. This electronic publication can help your organization understand the card acceptance process and proactively manage and reduce transaction processing expenses. It describes the transaction flows in credit and debit card systems, key network participants, the structure of interchange pricing and related fees, and ways to avoid the pitfalls that increase costs.

Excerpt

Card payments have utterly transformed the financial services landscape since their modest beginnings over 50 years ago. Over 36% of consumer payments in 2004 were made with electronic payment vehicles, the majority of those on some type of plastic card. In 2004, U.S. consumers charged $1.43 trillion in credit payments alone, a year when Americans held over 566 million credit cards and 290 million debit cards. In other words, card payments have become a fundamental part of Americans’ lives, and revenue from card payments has become critical to financial institutions’ bottom lines. As a consequence, however, card payments have become major expenses for merchants and these expenses are controversial today.

U.S. interchange has been modified over time to achieve a wide variety of desired outcomes:

• Reductions have promoted new technology at the point of sale.
• Increases have selectively targeted channels characterized by higher fraud and greater reliance on cards, such as mail order, telephone order, and Internet.
• Reductions have been used to penetrate supermarkets, quick service restaurants, and other lower profit margin categories.
• Increases have been used by card associations to compete for market share and to encourage certain issuer product development.

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