How Swipe Fee Battles Ensnare Consumers

Candice Choi, AP Personal Finance Writer

NEW YORK (AP) — The customer isn't always king. Sometimes he's just a pawn.

The feud over the so-called swipe fees merchants pay banks when customers use plastic is reaching a crescendo and will likely hit registers in coming months.

Both sides — merchants and card issuers — insist they're fighting for the best interests of the consumer. At stake are billions of dollars in swipe fees, otherwise known as interchange fees.

Visa and MasterCard agreed earlier this month to let merchants offer customers incentives for paying with cards that have lower swipe fees. Separately, new regulations this year will cap the debit card swipe fees merchants have to pay.

Banks and credit unions warn that they'll need to make up the lost revenue elsewhere.

Where the changes leave consumers isn't yet clear. Here's what you should know:
Q: First off, what are interchange fees and why is there so much talk about them?

A: Let's start by clarifying a common misconception.

Contrary to popular belief, Visa and MasterCard don't issue credit cards; they run the networks that process transactions made using those cards. If it was the cell phone universe, think of the companies as operators of the phone lines and networks over which calls are made.

The use of their networks comes with costs, which are paid for in a complex way.

Every time a customer pays with plastic, the merchant pays a fee to the bank or credit union that issued the card. The fee typically ranges between 1% and 2% of the purchase amount.

Visa and MasterCard don't get a direct cut of this fee. But they make money through separate deals with the 16,000 or so banks and credit unions that issue cards.

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