When you go to your local auto mechanic and offer him a credit or debit card for payment, what happens? He takes your card and swipes it through the terminal, and if he’s following the rules he turns it over to view the signature strip, asks you to sign a receipt, and matches the signatures. Assuming they match, you go on your happy way. When the mechanic swiped your card for payment, your card information was sent at the speed of light though the card-issuing bank and the merchant-acquiring bank
networks. Then it’s back to the merchant, where the receipt prints for your signature. Although the money is not yet en route to the merchants bank, a hold has been put on your card account for that amount. This keeps you, the cardholder, from spending more money or using more credit than you have available (although if you don’t opt out with your debit card, your bank probably will allow you to spend more than you have, thus generating a nice overdraft fee). At the end of the day, when the merchant batches out,
the money is finally on its way to the merchant’s bank account. The fees for the transaction are either taken on the fly or deducted at the end of the month, which is the preferred method of most merchants. The money will then be directly deposited into the merchant’s bank account in as little as one business day or as long as two or three.
At the end of the month, where does all the money go? The lion’s share obviously goes to the merchant. The biggest portion of merchant cost goes to “interchange,” which is the main cost before the markup. The Interchange fee goes to the company of the credit card that was swiped. That’s right, folks. Credit card companies get you coming and going. They’re making money on the merchants who accept the card, and they’re making
money on the cardholder. How about that for a business model! But wait, there’s more. Most of the markup goes to the processor, the independent sales organization (ISO), or even the merchant level sales rep (MLS). That’s you! Believe it or not, for the most part the card brands take the smallest portion of the pie, although they take a bit of every piece. $
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