Every time you buy something with a credit card or a debit card, the retailer you buy it from doesn’t get the full amount of the charge. Visa and MasterCard collect an interchange fee of up to 2.95% plus a small fixed amount per transaction.
For the most part, we never seen the direct impact of interchange fees. The agreements that merchants enter with Visa and MasterCard don’t allow them to tack on interchange fees as a surcharge to customers, and although offering a discount for cash is permitted, cash discounts haven’t really caught on outside of gas stations.
Therefore because we never really see a direct impact on the interchange fees, we may never see any direct benefit from all the proposed legislation that attempt to limit such fees.
Some argue that by reducing their interchange fee expenses, retailers will be able to pass on savings through lower prices. But given how the charges were hidden from consumers in the first place, struggling businesses are more likely to keep the savings to boost profits or cut losses rather than passing them on.
In fact, if legislation is passed to limit credit card interchange fees, then some consumers could end up being worse off. Interchange fees help provide funding for the credit card rewards that so many people get from their cards. Yet as we’ve already seen during the financial crisis, falling bank profits have started eating away at issuers’ willingness to continue rewards programs. With another source of revenue under attack, it’s even more likely that customers will face annual fees and other direct costs to offset lost interchange fee income.