HANDLING PAYMENTS electronically isn’t as easy as it seems.
Ever wonder how credit card companies make their money? Aside from financing
charges, the answer is simple: chargebacks. Every time you pay for something
with a Visa (www.visa.com)
or MasterCard (www.mastercard.com)
credit card, the vendor sends a small percentage of the transaction directly
to those credit providers. This fee is transparent to buyers; in most cases,
vendors simply have subsumed chargeback fees into the price of every object.
At colleges and universities, however, it’s not that simple.
Many schools, including Indiana University and the University
of St. Thomas (TX), have gotten fed up with losing the 1 or 2 (sometimes
3) percent chargeback fee to credit card companies. Do the math: If students
are paying upwards of $10,000 or $12,000 a semester for tuition, and they’re
charging the money on their credit cards, guess how much schools are forking
over in chargebacks? A lot—in some cases upwards of $300 per transaction.
In response, these schools and others are fighting back, preventing students
from using Visa and MasterCard credit cards so that institutions don’t have
to pay chargebacks at all. Interestingly, these schools also have aligned themselves
with big-box retailer Wal-Mart, which is currently embroiled in a lawsuit with
Visa over the chargeback issue. Barry Walsh, senior director for eBusiness services
at Indiana, assails the chargeback as an “ugly” part of the payment business,
and says it’s hard to justify the convenience of online credit card payment
when the non-profit public school forks over thousands of dollars a semester
to the credit card companies.
“For small schools, it might not be that much of an issue,” he says. “But for
big schools like us, you’re talking about a ton of money going right back to
A handful of schools have devised creative ways to counterbalance chargebacks,
adding universal service fees (usually $55) to every credit card transaction,
no matter what the amount. Since Visa d'esn’t allow convenience fees on its
transactions, however, most schools have employed another solution: Automated
Clearing House, or ACH, a debit card payment that deducts directly from a user’s
bank account. Will the chargeback issue drive more schools into the arms of
electronic payment systems that focus on ACH? Stay tuned