#3 MasterCard & Real Estate Transactions

A Real Opportunity for Merchants to Save Money on Credit Card Fees

Historically, information on interchange rates was restricted to members of the Credit Card Associations and affiliated payment processors.  Ironically, Interchange generally represents the bulk of what merchants are required to pay the credit card systems!  According to an extrapolation of data contained in Visa’s SEC registration statements, merchants paid over $100 billion of Interchange in 2006.

In this same year, however, both Visa and MasterCard decided to publish their respective Interchange rates.  For the first time since the inception of the Associations, merchants were encouraged to “do the math” and understand their true fee structure.  This translated into a real opportunity for merchants to save money on Interchange fees.  The following three examples are drawn from real-life scenarios, and are designed to illustrate the profound monetary effects of understanding Interchange principals.

Case 3:  MasterCard and Real Estate Transactions:

In April of 2007, MasterCard rolled out a new Interchange rate affecting merchants involved in certain real estate transactions.  This lower rate was introduced to provide landlords and other property renters with an incentive to accept rent payments via credit cards.  Prior to the new rate, these merchants were subject to the “Merit 1” Interchange rate with credit card and debit card rates of 1.89% + $0.10 and 1.64% + $0.16 respectively.

The rates for real estate transactions under the new “Merit 1 Real Estate” program were set at 1.1% with no fixed transaction fee for both debit and credit cards.  This represented a savings of 0.79% + $0.10 for each credit card transaction and a savings of 0.54% + $0.16  for each debit card transaction.  Because rents tend to be relatively high, the fixed fee savings tended to be meaningless.  The percentage savings, however, turned out to be significant.  Base on a monthly rent of $1000, a landlord would save between $5.50 and $8.00 per transaction depending on whether a credit or debit card was used.