The Visa and MasterCard Duopoly

The Visa and MasterCard Duopoly
Did you know that when you pay with your credit card, approximately 2% to 3% of that entire amount goes back to the bank that issued your card? This is called the interchange fee or swipe fee. Some of that money is paid out to cardholders in the form of rewards like cash back or airline miles. Another piece of the interchange fee is paid to payment networks like Visa and Mastercard.
Did you notice that I said “card issuing bank?” Visa and Mastercard to not issue cards directly to the public but Discover and American Express do. The card issuing bank actually issue the Visa and Mastercard credit cards to customers. Visa is larger than Mastercard in terms of transactions, purchase volume, and cards in circulation. It really doesn’t matter much whether you have Visa or Mastercard. What matters is the bank issuing the card. The bank determines interest rates, fees, and rewards. The only time it really does matter whether you have Visa or Mastercard is when you go to a merchant like Costco, that only accepts one and not the other.
The interchange fee helps compensate the card-issuing bank for various costs associated with providing credit card and debit card services such as fraud protection, customer service, and card issuance. Did you know you have more consumer protection with a credit card than a debt card? If you can be responsible with your credit card and pay off the balance, you should be doing all your transactions on your credit card rather than your debit card.
US merchants paid $93 billion in Visa and Mastercard credit card fees last year.
The companies have an operating profit of more than 50%.
The combined operating profit of Visa and Mastercard has grown 40x in less than two decades to more than $31 billion last year.
Most retailers have very slim profit margins. What people do not realize is that businesses expenses, whether they result from shoplifting, or in this case, credit card fees, are in turn based on to the consumer. However, most merchants will charge you the same amount whether you pay with a credit card or cash. Therefore, there is a transfer of money from people that pay with cash to people that pay with credit cards.
Visa and Mastercard have both announced they plan to increase fees paid by retailers.
Works Cited:
https://www.investopedia.com/articles/personal-finance/020215/visa-vs-mastercard-there-difference.asp
https://www.wsj.com/articles/the-credit-card-fees-merchants-hate-banks-love-and-consumers-pay-11592731800?mod=article_inline
https://www.wsj.com/finance/visa-mastercard-prepare-to-raise-credit-card-fees-ed779be1?utm_source=chartr&utm_medium=newsletter&utm_campaign=chartr_20230901
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