Consumers certainly know about double-dipping ATM surcharges (our StopAtmFees.com site is here), piled on top of the "foreign ATM" fee your own bank charges you to use another's ATM and shares with the ATM owner.

But the banks also take a percentage fee from the merchant of up to 1-2% on every credit transaction (using either a credit card or a debit card without a PIN) and somewhat less on every PIN-based debit transaction. Buy something for $100, the merchant may only get $98-- all prices for everything you buy with cash or credit, wherever a merchant accepts plastic, reflect this significant cost. It's called either the interchange fee or the merchant discount-- retailer lobbyists have told me that after the cost of goods sold (their products), it's often their largest cost-- more than rent, more than salaries, more than utilities. It's why some small merchants refuse to accept cards with high merchant discount fees; others insist on minimum purchases, even though requiring minimums supposedly violates their agreements with the card companies.

As banks drive us to use ATM debit cards (e.g., adding Rewards features) instead of cash, merchants have increased the heat on the banks, which so far refuse to show any quarter unless forced by a court.

When an ATM card is used without a secret PIN, it is treated as a credit transaction and the merchant fees are higher. That's why grocery stores hope you'll choose debit, not credit (note that their machines are generally programmed to default to debit). That's also why the banks steer you the other way. Some banks impose a consumer fee when consumers use debit cards with a PIN. They hit you with a 75 cent stick hoping you'll take the carrot of a "free" PIN-less transaction. NYPIRG has studied the PIN-debit fees in detail.

The practice affects all merchants, even Wal-Mart. This summer, several groups of smaller retailers filed class action lawsuits against the credit card associations Visa and Mastercard over their interchange fee practices. Stacy Mitchell of the Institute for Local Self-Reliance explains the issues here, particularly the banks' practice of charging all retailers too much, but small retailers even more:

Unlike other products where there are legitimate cost savings from dealing in larger volumes, that is not the case with credit card transactions. "It costs exactly the same for Visa to have a link with the merchant processor for a small retailer as for it to have a link with the processor handling Wal-Mart's transactions," said [former FTC anti-trust expert David] Balto [counsel for the retailers].

The suits follow on the heels of a recently completed multi-billion dollar settlement over so-called "honor all cards" rules (if you take credit, you must take PIN-less, or signature, debit) in a recent class action (with all retailers eligible to join the class) with Wal-Mart as the named plaintiff. The settlement and the history of the case are explained to potentially eligible merchants here.

Some time ago I saw an industry newspaper ad for a conference. The event's title: Fee Income: The Holy Grail. They weren't kidding. As Pressler details in the Washington Post:

"So a year ago, when gas prices averaged $1.87, banks involved in credit card processing made about $12.5 million a day on fees. Now, with prices averaging $2.75 nationally, the credit card companies are raking in $18.4 million a day. That is $183 million more a month, or nearly $2.2 billion dollars on an annual basis in extra money paid to the nation's banking giants just because of rising gasoline prices."

Here's a previous blog that discusses both Rewards and the practice of debit card blocking, an extremely unfair practice.

Finally, the vast bulk of these revenues and accompanying profits accrue to the very largest banks, since they dominate both credit and debit cards/