Where do those credit card fees actually go?

An interesting article in todays's paper explains how credit card fees and rewards points work, and it's more complicated than you might have thought.

The credit card fees that a business has to pay for the privilege of being able to offer credit card transactions - and, particularly since the pandemic, more and more people want to do that, and fewer and fewer people are using cash - varies depending on the business. Small businesses tend to pay a little less, but, with slim margins, it can still make the difference between a viable and a non-viable business. Rates vary between different industries according to some less-than-transparent secret formula, and online credit card transactions attract higher rates than in-person ones, due to the higher incidence of fraudulent transactions.

Typically, though, a merchant might get to keep about 98% of the sale price of an item paid for on a credit card. About 1.4% (1.74% before changes made in 2014) goes to the bank issuing the credit card (RBC, BMO, CIBC or whatever). This is known as the "interchange fee", and is supposedly to recompense the banks for the hassle of having to extract monthly payments from credit card subscribers (and of course they make a bunch more money from interest on unpaid credit card balances, card fees, etc). Next, 0.51% goes to the processing company or "acquirer" (e.g. Moneris, Chase, etc). And finally, only about 0.09% goes to the credit card company itself (e.g. VISA or Mastercard), which might not sound like much but think about how many transactions there are each day (don't feel too sorry for VISA!)

Rewards points are a whole separate system, and represent another cut from the merchant's take because the banks tend to claw it back in interchange fees. Rewards points may be 1% (more normal) or 3% or even 5% for some types of products, and merchants like them as they do definitely attract some customers. But someone has to pay for them, and this is ultimately the merchant, although bear in mind that some merchants may well increase their prices to compensate for what they offer in points, and the customer would never know.