There is a huge showdown going on between banks, merchants, regulators and legislators over interchange fees on credit cards and debit cards. Interchange fees are charged to merchants every time a customer uses a card, and the controversy over the fees is leading businesses to rebel against the way things have been done for years.
Card fees becoming less palatable to businesses
Some people may have noticed that coffee shops, gas stations and other businesses have begun imposing a minimum purchase amount a person has to make in order to use a debit card or credit card, and there’s a reason for it. It’s called an interchange fee, and the bank that a person has their credit or debit card through charges a fee to pay the customer’s charge, and it costs, on average, 44 cents according to CNN. Banks are fighting furiously to keep the fees as they are because they make billions for the banking industry. Merchants are championing the legislation because they are fed up with having to pay banks to get money they are owed. Anthem Blue Cross, according to the Los Angeles Times, is going to start charging customers to make automatic payments from their credit or debit card account.
Credit card companies moving into prepaid cards
Some credit card companies are moving into the prepaid card market. For instance, American Express recently announced that it is launching a new prepaid debit card, according to Time. Visa and MasterCard already offer them, along with companies like GreenDot and others. It turns out there’s a good reason. Prepaid debit cards, which have to be reloaded with cash but don’t have overdraft fees and don’t require a bank account to get, aren’t subject to the same regulations. GreenDot, according to Reuters, derived 30 percent of its income in 2010 from interchange fees and, unlike debit card counterparts from Bank of America or JPMorgan Chase, prepaid debit cards are exempted from the interchange fee cap.
It’s chip to be Square
Not everyone has to accept traditional payments systems or opt to only accept cash. Mobile payment system technology is starting to increase its presence in the marketplace. For instance, the Square mobile payment system has a card reader that plugs into a smartphone, and users can download the Square application to begin accepting payments through mobile devices. It’s compatible with Android phones, iPhones and iPads. Square is also working on a payment network in which merchants using the service can deduct payments from a person’s debit or credit account by simply verifying the customer’s identity and don’t have to swipe a card, according to the Washington Post. There are also Near-Field Communication systems being implemented nationwide. NFC technology uses a chip mounted in a card or a cellular phone that a reader registers and charges the appropriate linked account. South Korea, according to Reuters, plans to have 300,000 NFC equipped merchants by the end of the year.