Credit Card Processing — indicator for Consumers Spending

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by stream5482

Credit Card processing is very important as it’s a key indicator for consumers spending. Scroll down for Puts/Calls.

Parties Involved to make it work ?

1.) Consumer — end user. Credit Card holder.

2.) Merchant — Business establishment accepting payment. These guys pay out all the fees

3.) Card Brand —- Visa, Mastercard, Discover (Diner Club, Union Pay), American Express,

4.) Sponsoring Bank — handles risks, daily balancing, funding the merchant.

5.) Issuing Bank — Issue the credit card. If your credit card say “ Chase”, then Chase is the issuing bank.

6.) Processor — transactions run through these guys. Think of them as a highway to run and verify transactions

7.) ISO — Independent sales office. These guys are the one who call business to sign them up with “ use my company

for cheaper rates”

How does each Parties make money ?

1.) Consumer — they don’t anything as they are the purchaser.

2.) Merchant — they pay out all the fees. At the end of the month, they get a bill for the privilege of being able to accept credit card.

3.) Card Brand — Card Brand is pretty much god. They make about 15% of total fees paid out to merchant. Look up FANF, dues & assessments. If Visa need money, they just increase their rates, that’s it. More on this later.

4.) Sponsoring Bank — these guys make the least out of everyone in the group. About 0.01% -0.03% ( 1 to 3 BP) of total processing volume.

5.) Issuing bank — “interchange” is paid out to the issuing bank. These fees account for about 75% of all total fees. Card Brand dictate interchange. I’m not going to go into qualifications, etc….. Interchange rates is publish for each card brand. Look it up.

6.) Processor — these guys usually make money on per transaction counts. About $0.02 -$0.05 per transaction and bunch of other misc fees.

7.) ISO — whatever is left over goes to the sales group. In a normal business niche ( not high risk or CBD/ cannabis), profit is about 0.30% – 0.50% of total processing volume.

Profit Math

Merchant’s fee – ( issuing bank + card brand ) = ISO’ Gross – ( Processor + Sponsoring Bank) = ISO’s Net.


Always have 2 parts.

a.) Percentage multiply by the processing volume.

b.) Fix charge multiply by the transaction.

What if you as a sales office charged merchant 2.75% ( SQUARE) and nothing else? you would net negative on any transactions under $10 and net positive on any transaction over $40.00

Why ? because interchange for a signature regulated debit is 0.05%+ $0.22( per transaction) not including all the other costs.

State of the world.

All 50 states have stay-at-home orders. Some states are talking about opening up again ( GA, FL). Guess what ? it’s the Consumers who’s going to decide when to “open” up. Household spending account for 70% of annual GDP.

The rest of the world is on lock down. Even after opening up, it’s still bad.

Great…… Give me puts or calls……………..

1.) Card Brand —-

a. Visa ( V) — earning is on 04/30. They are the god in this business. They have the greatest exposure in US and overseas. There is no place in asia or Europe that does not take Visa. They increase their rates twice a year. Rate increases scheduled for this April was pushed back to July. Their earnings will be absolutely horrible as the rest of the world started shutting down in Feb and US in march.

i. Waiting to be fill — V 01 May $160P

ii. Waiting to be fill — V 19 June $135P

b. Mastercard — earning is on 04/29 — They have the second highest processing in US. Also like Visa. If you are playing earning, any puts within 5% will be good.

c. Discover ( DFS) (Diner Club, Union Pay) — Earning 4/22 — I had 15 X $2.72 01 May $34C going into earning. CALLS?? WTF?? 1.) they announced dividends right before earnings. 2.) They own debit networks. Think grocery stores, liquor stores, cannabis shops. 3.) Dinner club, union pay, paypal all goes through them to process on a traditional level.


Q1 GAAP EPS of -$0.25 misses by $1.61.

Revenue of $2.89B (+4.7% Y/Y) beats by $10M.

Shares -5.3% AH.

Going to exit my position at open with probably 40% losses.

This is good, if DFS missed by bad, the rest will be way way worst.

d. American Express ( AXP) — rich people’s credit card.

2.) Sponsoring Bank —

a. FITB — 4/21 — missed earning. Went down on 4/21 then went back up.


3.) Issuing Bank — I would not touch issuing bank as they are too diversified.

a. Chase

b. Bank of America

4.) Processor — do your own research.

a. Global Payments

b. Fiserv


SQ ( Square) — earning 05/06. I did not talked about Payment facilitator. Which is kinda of what they are. Here was a post on here “ Square InC, SQ Puts—let’s be rational. Right direction but wrong DD.

Square is all domestic and make their money primary from

1.) Credit Card processing — they will give merchant, 2.75% or $275 total fees. Their credit card processing is net negative since inception. The reason is because of their client base ( mom and pop, start up, small transactions type businesses). 2.75% is a good percentage on volume but the $0.00 per swipe is killing them by the time they have to pay out interchanges and dues assessments. Their average ticket have to be over $25.00 to be profit. But the business model will not allow it. Small mom and pop go to them because lax underwriting, and it’s a lot easier vs a traditional model. Most of their merchants is under 10k in processing.

2.) Hardware sales — very minimal 1 time revenue

3.) SAS ( Service as a subscription) — Minimal revenue when comparing to credit card processing. They are also waiving all the software subscription fees for the month of April.

4.) Others…………


1.) In fintech, you don’t need to be making money. You can have years of losses and stock will go up. Why ? because it’s about acquiring a large merchant base.

2.) Jack Dorsey — yes the Twitter guy. He’s the founder and ceo of Square. He’s the Elon Musk of this space. And you don’t mess with papa Elon.

3.) SQ is APPROVED to make Emergency Small-Business Coronavirus loans.

The exposure they get from this is HUGGGGEEEEEEEE.

Ask yourself, does bad earnings = STONK go down ????????

GO with VISA puts, a lot safer.


Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.


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