Effective January 15th, 2008, MasterCard will raise three categories of it's international interchange.
- International Consumer: Interchange rates will increase between .24% and .05% basis points on transactions where a non U.S. consumer credit card is used at a U.S. based merchant.
- International Commercial: Interchange rates will increase .15% basis points on transactions where a non U.S. commercial credit card is used at a U.S. based merchant.
- Cross-Border Assessment: Rates will increase by .20% whenever the cardholder's country code is not the same as the merchant country code.
The European Union wasn't too pleased with the increase they announced for European merchants and have given MasterCard six months to drop the increase or else face a daily fine of 3.5% of daily global revenues? (Can they really do that?)
In years past Visa and MasterCard would announce interchange changes on an orderly schedule, usually in the spring. When announced, most credit card processing providers in the industry would attempt to capitalize on these increases and raise the margins they were getting from their customers. So for example if rates went up .20% basis points they would increase their rates .40% basis points, which in my opinion is not a fair practice.
It's understood that rate increases will be passed on but not added to. At the same time, this topic is very complicated so I don't want to oversimplify it. At the heart of the problem is the highly complicated interchange structure which consists of roughly 170 different rate categories. Read here for more detailed explanation of where credit card fees come from and how they are determined.
For large providers, because pricing changes must be made to the entire portfolio, averages are passed on to all the merchants. These international increases are a good example. Most merchants don't process a lot of international cards regularly so the interchange increases would have minimal impact on the credit card provider. But because it's logistically very challenging for the larger providers to drill down and evaluate each merchant's processing, averages are used to determine increases.
So when you receive your new few monthly credit card processing statements that you never read, look for the message at the top where a rate increase will probably be announced.