It’s not a bank. It does not issue cards, nor extend credit or set interest rates or fees, yet the name Visa is on just about every second credit card you see. What is Visa and how does it make money?

Consumers are spoilt for choice when it comes to credit cards. We can choose between hundreds of bank-issued cards with rewards tied to airlines, hotels and any number of products or services we value. Banks chase our business by offering the most dazzling rewards they can, especially at the Platinum level and above, because these are money spinners for the banks. And, after comparing offers on the market, the eventual credit card we choose is likely to be a Visa or MasterCard.

Who are they and what do they do?

Let’s separate out Visa and look at how they fit into the credit card jigsaw puzzle. Quite simply, Visa makes money every time you use your card. They process the transaction between the banks and the retailer, charging a pre-determined ‘interchange’ fee on the transaction.

We now take it for granted that we can use our credit cards pretty much anywhere around the world with no problems. But it wasn’t always the case.

The BankAmericard, now Visa, was founded in the U.S.A. in 1958. It was Bank of America’s first consumer credit card for middle-class consumers and small- to medium-sized merchants in the United States. The company grew and expanded internationally, changing its name in 2007 to the more universally-accepted Visa Inc., which listed publicly on the stock exchange the following year.

The company’s core business focus had changed direction by then, morphing into the global payments giant it is today. Visa Inc. provides the services you don’t see, connecting consumers, businesses, financial institutions and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. Its processing network – VisaNet – is capable of handling more than 65,000 transaction messages a second, with fraud protection for consumers and assured payments for merchants.

Visa’s products and services are now available on any device from credit cards to laptops, tablets, and mobile devices.

What is the connection between Visa and my local bank?

Visa and their competitor MasterCard do not issue any credit cards. Rather, they license their payment brands to Issuers and Acquirers. Issuing banks are the local banks that provide you, the consumer, with the credit cards in your wallet. Acquirers are the merchants’ and retailers’ banks that process your purchase transactions.

Banks using Visa services compete in their local markets for the business of cardholders and merchants. Using the power of the Visa global brand also helps smaller financial institutions access the economies of scale of this huge global payment system.

Visa and MasterCard do not approve transactions. The bank that issues your credit card approves the transactions. The issuing bank takes on the risk that you as the consumer will pay them back for the items you purchase. In turn, the issuing bank is paid an interchange fee. This is a small fee for processing the transaction, ensuring the merchant gets his money, as well as for providing monthly statements, 24/7 support and troubleshooting. This fee is locked into your agreement from the start.

Who supplies all those lovely credit card rewards?

As we said previously, using the Visa global brand allows banks of all sizes to compete for customers by harnessing the rewards offered. And these rewards are considerable, undoubtedly more than your local bank could muster by itself. Both Visa and MasterCard have a suite of eye-catching rewards they continually improve on, to attract banks to sign up for their services.

Rewards range from top shelf personal concierge services to special offers on luxury goods and services. Competition for customers is fierce and credit card rewards programs run the gamut from cards only major Spenders or millionaires would use to cards for the more modest everyday spender or occasional spender.

Fuelling these rewards programs are interchange fees. The more upmarket the rewards card, the more you’ll pay in interchange fees and the more profitable it is for the bank.

Tell me more about interchange fees

This is where it gets complicated. There are layers of interchange fees – at least 21 of them – that are paid between banks for the acceptance of card-based transactions.

Visa and MasterCard have established a number of interchange fee categories based on factors such as the type of account (e.g. consumer or commercial), the type of card (e.g. standard or premium), the type of merchant (e.g. government, charity or service station) and the type of transaction (e.g. chip, non-chip or contactless). Some examples of interchange fee categories on domestic transactions are given in the following tables.

Domestic Visa Credit Interchange Rates

Effective 1 November 2015, the following interchange rates apply to domestic transactions processed through Visa’s NNSS*:

Description Rate inclusive of GST**
Charity rate 0%
Strategic Merchant Program rate 0.220% – 0.330%
Recurring Payment rate 0.275%
Government rate 0.275%
Utility rate 0.275%
Education rate 0.275%
Insurance rate 0.275%
Service Station rate 0.275%
Supermarket rate 0.275%
Transit rate 0.275%
Electronic rate 0.275%
Standard rate 0.275%
Premium rate 0.924%
Super Premium (Visa Rewards) rate 1.320%
Super Premium (Visa Signature) rate 1.375%
High Net Worth rate 2.200%
Business rate 0.924%
Premium Business rate 1.430%
Super Premium Business rate 1.980%
Corporate rate 1.265%
Purchasing rate 1.265%

* Domestic transactions not processed through Visa’s NNSS will receive an interchange rate of 0.550%, inclusive of GST
** % = percent of the transaction value

Domestic Visa Debit Interchange Rates

Effective 1 November 2015, the following interchange rates apply to domestic transactions processed through Visa’s NNSS*:

Description Rate inclusive of GST**
Charity rate 0%
Strategic Merchant Program rate 2.2 cents – 8.8 cents
Recurring Payment rate 6.6 cents
Government rate 6.6 cents
Utility rate 6.6 cents
Education rate 6.6 cents
Insurance rate 6.6 cents
Service Station rate 6.6 cents
Supermarket rate 6.6 cents
Transit rate 6.6 cents
Electronic rate 8.8 cents
Standard rate 0.462%
Premium rate 1.155%
Business rate 1.155%
Corporate rate 1.155%

* Domestic transactions not processed through Visa’s NNSS will receive Electronic and Standard interchange rates of 8.8 cents and 0.33%, respectively, inclusive of GST
** All fees are represented in Australian Dollars; cents = cents per transaction; % = percent of the transaction value

You can check current rates here.

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