How does VISA make money? – AbnAsia.org
Why is the credit card called โthe most ๐ฉ๐ซ๐จ๐๐ข๐ญ๐๐๐ฅ๐ product in banking historyโ?
How does VISA make money?
The diagram below shows the economics of the credit card payment flow.
1. The cardholder pays the merchant $100 to buy a product.
2. The merchant benefits from the use of the credit card with more sales volume, and needs to compensate the issuer and the card network for providing the payment services. The acquiring bank sets a fee with the merchant, called the โ๐ฆ๐๐ซ๐๐ก๐๐ง๐ญ ๐๐ข๐ฌ๐๐จ๐ฎ๐ง๐ญ ๐๐๐.โ
3 – 4. The acquiring bank keeps $0.25 as the ๐๐๐ช๐ฎ๐ข๐ซ๐ข๐ง๐ ๐ฆ๐๐ซ๐ค๐ฎ๐ฉ, and the rest of $1.75 is paid to the issuing bank as the ๐ข๐ง๐ญ๐๐ซ๐๐ก๐๐ง๐ ๐ ๐๐๐. The merchant discount fee should cover the interchange fee.
The interchange fee is set by the card network because it is less efficient for each issuing bank to negotiate fees with each merchant.
5. The card network sets up the ๐ง๐๐ญ๐ฐ๐จ๐ซ๐ค ๐๐ฌ๐ฌ๐๐ฌ๐ฌ๐ฆ๐๐ง๐ญ๐ฌ ๐๐ง๐ ๐๐๐๐ฌ with each bank. Each bank pays the card network for its services every month. For example, VISA charges a 0.11% assessment plus a $0.0195 usage fee for every swipe.
6. The cardholder pays the issuing bank for its services.
๐ Why should the issuing bank be compensated?
๐นThe issuer pays the merchant even if the cardholder fails to pay the issuer.
๐นThe issuer pays the merchant before the cardholder pays the issuer.
๐นThe issuer has other operating costs, including managing customer accounts, providing statements, fraud detection, risk management, clearing & settlement, etc.
๐ Over to you: Does the card network set up the same interchange fee for big merchants and small merchants?
