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Why are credit card rates so high?

Why are credit card rates so high?

By Art Lieberman
President, MCPS for Campgrounds

One of the questions we are always getting is the one in the headline to this article. The answer is pretty simple. The actual rates from Visa, MasterCard, Discover and American Express really aren’t so bad – and if you could get THEIR rates you’d be thrilled.

But you can’t!

We have explained this before, but it doesn’t seem to gain any understanding from most merchants. The rates from the credit card companies, called interchange rates, are based on individual card types and are broken down to individual cards themselves.

For instance, the lowest rates that are given are on debit cards WHEN THE TRANSACTION IS WITH A PIN PAD. There are also nearly a dozen types of debit cards through debit networks such as NYCE, Star, Maestro, Interlink, Pulse, ACCEL, CU24, AFFN and Jeanie. That’s most of them and they EACH have their own interchange rate on Visa or MasterCard.

The rate on a PIN debit transaction in Visa starts as low as 0.62 percent – that’s right – that low. However you will never, as a campground owner or any merchant, receive that rate on your credit card statement.

Credit card transactions also vary on the interchange. They start pretty low, at about 1.39 percent and range all the way over 2.20 percent, depending on card type. There are plain bank credit cards, reward cards, branded cards, gasoline cards and corporate cards, each with their own Interchange rate.

Once again, as an owner, you will never receive those rates, but you WILL see them on your bill – until they get raised by a processor. They give you rates which are called, in the trade, “interchange plus” — the plus is the profits on the transactions. It is these plus rates wherein the people who market credit card services compete.

There are additional costs to processing credit and debit card transactions. These vary widely in the industry. Almost every processor charges a “transaction fee” of around a few cents for each time a transaction is done and there are statement fees, PCI compliance fees and a variety of other fees tacked on to the monthly costs.

There are also fees which are not monthly fees but are what might be called “occurrence fees” which are charged when something that happens only once in a while. There is the dreaded chargeback fee, usually around $25 when a customer claims that something was wrong with the transaction and a settlement could not be reached with the campground and the customer asks the credit card company that the transaction be cancelled and a refund be given.

There are also fees for researching a transaction called retrieval representment fees and voice authorization fees when a call center has to be called to clear a transaction – ad nauseum. Happily, these fees are a rare occurrence, especially in the campground industry.

But I still haven’t answered the leading question as to why are those rates so high. The answer lays in the marketing setup of the credit card industry. Credit card companies have only allowed certain banks, around 50 of them, the right to be given the interchange rates to sell and those banks pay for the privilege.

Although these banks, called “acquiring banks,” do actually sell credit card processing in their own banks, that is only the tip of the iceberg. Banks such as Bank of America, Capital One, Chase, Citi Bank, Elavon, Heartland, M & T, Merrick, PNC, Sovereign, Sun Trust, Wells Fargo and Woodforest Bank now hire sales representatives to market their processing externally.

These companies are called independent sales organizations, or ISOs, and they, in turn, hire other sales representatives called independent sales agents, or ISAs.

Each step of the way, the interchange rates are raised ever so slightly. Remember that 0.62 percent debit card? It now is 1.39 percent when the agent offers it to you.

That’s why credit card rates are so high! They are upsold at every level of the sales pyramid.

If you wish, MCPS will explain how to avoid the sales pyramid on either April 11 or April 13 at 2 p.m. Eastern time. We will show you why at a FREE webinar we are conducting. Just e-mail us at rvcreditcards@yahoo.com and let us know which webinar you want to attend and well send you instructions on how to win at the credit card game.

Art Lieberman is president of MCPS for Campgrounds and has been in the industry for more than 18 years and has been conducting free webinars online and seminars on credit cards in many state and regional association conventions.  He can be reached at 877.858-.9010 or by email at rvcreditcards@yahoo.com.

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