How Can Banks Afford to Give You Miles, Rebates, and Premium Services?

A piece in yesterday’s StartupJournal explained credit card interchange fees.

Interchange fees, what credit card companies charge merchants when you use your card, average 1.75% for Visa and Mastercard and 2.4% for American Express. Larger merchants, naturally, negotiate lower feels than mom and pop businesses, but those percentages are the average.

If Chase, which issues the United Visa, pays United 1.25 cents per mile and awards a mile per dollar spent on the card then they’re making half a cent on each dollar transaction. That half cent, plus any annual fee, funds their operations and any additional perks that come with the card.

It also turns out that which prestige level card you use may now play a part in determining what the merchant gets charged.

If you’re using a ‘premium’ Visa (such as Signature or Infinite) or Mastercard (such as World), the interchange fee is higher as of April 1. And once a merchant signs up to accept Visa, they can’t turn down your Signature card and insist you pay with a Visa Classic.

Banks are starting to charge merchants a bit more for premium cards, which generally include reward and rebate cards.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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