CreditCards Blog

:rolleyes: If you are paying for your holiday or buying a motorbike (for example), why is the company able to charge you an extra 2.5%, JUST, because you paid by a credit card?

Simple. The retailer is charged by the acquiring bank everytime they do a transaction. The amount they get charged depends on how much clout the retailer has with the acquiring bank, but 2.5% of the value of the transaction is about normal for a credit card transaction (debit cards are usually charged at a flat rate - even though they're processed in exactly the same way). Visa and Mastercard charge the acquiring banks for each transaction that they route through their systems. This is included in the charge that the banks levy on the retailer.

Most retailers "absorb" this cost, or include it in their advertised price, but when you buy something big (like a holiday, a car etc) then 2.5% is quite a significant sum and the retailer is just passing on what he is going to be charged by the bank for processing the transaction.

And before people start complaining about the banks charging to use their cards - please remember that in the world of electronic transactions there are two types of banks - those that acquire the transactions (i.e. rent out the terminals to the retailers and charge them for each transaction), and those that issue the cards (MBNA, Egg etc) who don't make any money from the actual transaction (they make their money through interest, fees and cross-selling and stuff).

Obviously there are some banks who do both (Barclaycard and Natwest for example are very big in the acquiring market).