Friday, October 20, 2006

"Rewards Account for 44% of Interchange Cost, Report Concludes" (Digital Transactions)

According to Digital Technology, key points from the Diamond Management & Technology Consultants report include:

"The days of merchant-subsidized credit card rewards programs, rapid increases in interchange fees, and confusing fee structures for credit card purchases are numbered, according to new research by Diamond Management & Technology Consultants, Inc. Pressure from Merchants Compels Credit Card Industry to Build New Business Models, According to New Diamond Report Billions in Interchange Fees, Customer Loyalty Programs at Risk as Banks, Card Issuers and Card Associations Face Merchant Backlash and New Competition," [From the Diamond Consultants website].
  • The costs of air miles and other perks and rewards account for 44% of bank card interchange
  • Card issuers’ cost of funds and profit margins take 35%
  • Network branding efforts account for 3%
  • 13% of the acquirer-paid fee goes toward various transaction-processing costs from which merchants derive a direct benefit
  • Interchange fees were subsidizing increasingly generous cardholder giveaways and other marketing programs
  • The report also underscores how much in the dark it says most retailers are regarding details of the fees
  • “Merchants really have little idea where their interchange dollars go,” says the report.
  • The fee structure itself can be confusing to merchants

[Source: Digital Travensactions, via report from The Diamond Report]

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According to ASIATravelTips, MasterCard is even offering helicopter trips and 70,000 other prizes in its Macau sweepstakes.