Feeling fine
Visa and Mastercard are gearing up to boost the fees that retailers typically shoulder when they accept payments from customers using credit cards, according to the WSJ.
The fees, often concealed from shoppers and swallowed by the merchant, pose a growing headache for businesses of all sizes. When customers swipe or tap their cards, 2-3% of the transaction funnels to their card-issuing bank. Part of this "interchange fee" then loops back to payment networks, dominated by Visa and Mastercard, giving them an enormous amount of industry leverage.
It takes two
Although the planned fee increases are somewhat different — Mastercard’s is a new pre-authorization fee for credit card purchases, while Visa’s new fees are starting with online transactions in October — the timing is conspicuous for two companies that dominate the payment landscape. US merchants paid an eye-watering ~$93 billion in Visa and Mastercard credit card fees last year — an inescapable part of doing business in 2023, that has made the two companies into absolute giants.
Indeed, their combined operating profit has grown 40x in less than 20 years, to more than $31bn last year. And, despite splashy marketing like sponsoring the Olympic Games and MLB, the two companies remain pretty lean, with a colossal 50% to 65% of their revenue dropping through into operating profit. Taking a few pennies on the dollar is a simple formula, but it's one that can quickly add up to billions.
