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*KK* · 06-23-2005

Interchange is a sword that cuts both ways -- something this industry might want to keep in mind.

Both issuing and acquiring banks pay into Interchange. Let's say the charge is roughly a quarter USD per transaction.

So on a $1 transaction, the issuing bank pays and the acquiring bank pays. No one makes any money on it, the issuing bank actually loses money, since the customer would basically have to default on his credit card bill, not pay the balance for a number of years, and then pay it in full including interest accrued in order to come up with 25 cents in fees on a 1 dollar transaction.

Acquiring has always been a sticky issue in high risk transactions. Issuing banks aren't stupid and when their profits are down, they begin to look at ways to reduce costs and create profits that they overlooked during boom times. It's always possible for issuing banks to refuse to take transactions from certain BINs or MCC codes, and while I think the rules of Visa and Mastercard both prohibit the declining of sales based on dollar amounts that are too low (too high can be declined on a fraud scoring basis), we should all probably remember that Visa and Mastercard are simply associations, controlled by the same banks that are issuing and acquiring card data for processing.

06-23-2005	#4
KK Members Respin bullshit press Your Comments Are Welcomed Join Date: Nov 2002 Posts: 2,581	Interchange is a sword that cuts both ways -- something this industry might want to keep in mind. Both issuing and acquiring banks pay into Interchange. Let's say the charge is roughly a quarter USD per transaction. So on a $1 transaction, the issuing bank pays and the acquiring bank pays. No one makes any money on it, the issuing bank actually loses money, since the customer would basically have to default on his credit card bill, not pay the balance for a number of years, and then pay it in full including interest accrued in order to come up with 25 cents in fees on a 1 dollar transaction. Acquiring has always been a sticky issue in high risk transactions. Issuing banks aren't stupid and when their profits are down, they begin to look at ways to reduce costs and create profits that they overlooked during boom times. It's always possible for issuing banks to refuse to take transactions from certain BINs or MCC codes, and while I think the rules of Visa and Mastercard both prohibit the declining of sales based on dollar amounts that are too low (too high can be declined on a fraud scoring basis), we should all probably remember that Visa and Mastercard are simply associations, controlled by the same banks that are issuing and acquiring card data for processing.