Kitchens by Riland

There are some things money can’t buy; for everything else there’s MASTERCARD. We would have seen/ heard this a million times. It is a classic advertisement for a credit card.

A credit card can now be easily obtained. But a lot of people are engaged behind the screens to issue us that single piece of card that enables us to enjoy cash free holidays or shopping or dining. The people involved are

* Providers

* Merchant banks/Merchant Accounts

* ISOs/MSPs

A merchant account is a bank account type that can accept payments by credit or debit cards. Now if you have a State Bank of India MasterCard credit card, MASTERCARD is the provider and State Bank of India is the merchant and is called the merchant bank. The merchant may be an ISO or an MSP. ISO stands for Independent Service Provider and MNP stands for Member Service Provider. The MSP or ISO may also be different from the bank .

A merchant account has a wide variety of fees that are charged by the providers for issuing the credit cards. The fees may be periodic or per-item or on a percentage basis. Now the merchant account charges the credit card issuing bank a considerable amount of money called intercharge fees, set by the providers. The fees vary according to the card type or the circumstances of transactions.

With such high rates for processing, it is but natural discounts have to be provided for proper sales of and through credit cards. The discount rates include dues, assessments, fees, mark ups and network charges. The largest among these includes the intercharge fees which is a part of mark ups. Each bank or ISO or MSP has real costs plus intercharge fees and makes profits by adding a mark up to all the fees.

There are a variety of price models based on which the discount rates are calculated, namely:

* 3 Tier pricing

* 6 Tier pricing

* Interchange plus pricing

* Bill backs

* Other fees (like Authorization fees, Statement fees, Monthly minimum fees, Batch fee, Customer service fee, Annual fees, Early termination fee, Charge back fee)

The 3- tier is the most popular as of today while the 6 tier pricing is fast gaining popularity. In this, the provider charges the merchant. The only difference between 3 tier and 6 tier pricing is because of the use of debit cards which differ from credit card as the interest rates vary and also they are guarded by a four digit pin unlike the credit card.

Credit card may look like a small piece of cardboard but it involves complex fees and intermediates that a common man has to spend at the least a few days to study and understand.