Merchants in India that operate POS terminals typically pay up to two per cent in merchant fees to their card-acquiring bank, with 30 basis points going to Visa or MasterCard, 110 basis points in interchange fees to the card issuer, and the acquiring bank retaining the balance of up to 60 basis points.
When a bank agrees to reimburse cardholders for the credit card surcharge that merchants add to the transaction, the loss is huge.
110 basis points in interchange fee revenue, wiped out.
30 basis points paid to Visa or MasterCard, out of the issuer’s pocket.
60 basis points paid to the acquirer, also out of the issuer’s pocket.
This could be the worst case scenario for banks facing interchange pressure in other countries. Not only do 110 basis points of interchange revenue disappear, but the issuer has to pay for card acceptance as well. All of this has to be made up in fees charged to the cardholder (which nobody wants to pay anymore) or in interest margins (not much left there, either).