Senator Schumer Warns against Store Credit Cards (The Epoch Times)

November 30, 2005

Click here to read article.

[source: The Epoch Times]

All-time Low for Credit Card Fraud (

November 30, 2005

All-time low for credit card fraud. Incidence of cheating dips by 38% despite more billings. While credit card transaction volumes in Singapore have grown significantly over the past few years, the number of fraud cases have fallen by 38 per cent to a historic low.

Click here to read article


"MasterCard’s® Legal and Regulatory Risks Threaten … Its Entire Business Model" (BW)

November 30, 2005

[Ed note: From the BusinessWeek article, Mastercard’s® IPO filings indicate that the new non-bank investors would be forced to pay its legal bill from antitrust class-action litigation initiated by 30 Minute Photos Etc. as lead plaintiff and other class representatives (disclosure, 30 Minute Photos Etc. and are owned by the co-editors of this Credit Card Interchange Report –].

DECEMBER 5, 2005 FINANCE – BusinessWeek

When The Bill Comes Due

MasterCard’s® new IPO investors will have to pay the company’s legal fees.

Priceless. That’s the theme of MasterCard Inc.’s® long-running advertising campaign claiming that there are some things in life on which you just can’t place a value. Little did the Purchase (N.Y.) credit-card outfit know that someday its own ad shtick could be applied to its upcoming initial public offering.

Just what will investors be buying if they invest in shares of MasterCard® when it goes public next year? Right now, no one can say for sure.What we do know is this: In the first quarter of 2006, MasterCard — which helped to pioneer the credit card nearly 40 years ago — will convert from a private, members-only club for banks to a public enterprise. Wall Street forecasts a blockbuster IPO that will eclipse the $1.2 billion raised by search engine Google Inc.

Street estimates put the value of MasterCard® anywhere from a conservative $2.65 billion to as much as $7 billion. In a world where plastic has trumped cash as king, MasterCard®, second only to Visa USA Inc.® as a payment network, seems like a good bet.

But is it?

The credit-card issuer is embroiled in dozens of lawsuits that could cost millions in legal fees and tens of billions in damages — and new investors could be stuck with the tab. MasterCard® is in a bitter battle with consumers, regulators, and merchants worldwide over issues ranging from data security breaches to processing fees. In filings with the Securities & Exchange Commission, MasterCard® says it plans to spend $650 million of the IPO proceeds on legal fees. It has no other reserves to fight this litigation, and although the banks will probably be on the hook for some of it, they’re distancing themselves from the MasterCard® network.

The most damaging cases are some 38 federal lawsuits by merchants that charge MasterCard® and Visa® with antitrust infractions and abuse of market power. MasterCard® and Visa® have already lost a similar case filed by the Justice Dept., as well as a class-action suit led by Wal-Mart Stores Inc. ®in which they had to pay $3 billion in damages. As a result of the DOJ case, American Express and Discover cards have sued the networks and big banks for damages stemming from anti-competitive behavior. “These are terrible cases for the industry,” says Duncan MacDonald, former general counsel of Citibank® cards.

“The ‘big bomb’ is if they are found to have colluded in price-fixing, the dirtiest sacrilege you can commit in the commercial world.” A MasterCard® spokeswoman says the company is in its SEC-mandated quiet period and cannot discuss the IPO.


But what the company says in its reports to the SEC is revealing enough. In an amended registration statement filed on Nov. 14, MasterCard states that legal and regulatory risks threaten its prospects for future growth, its profits, and its business model. The company says it believes that the legal woes have been brought on by its ownership and governance structure, and it hopes that by overhauling the board, bringing in new independent directors, and cashing out the member banks who currently set prices, MasterCard can put its legal troubles behind it.Others aren’t so sure. “The liability to the banks and MasterCard is unlimited,” says William McCracken, chief executive of Synergistics Research Corp., a financial-services market research outift in Atlanta.

Meanwhile, few analysts think that $650 million is enough to cover legal bills and damages, and MasterCard says “it is unable to estimate the amount of potential charges.” Says Craig J. Maurer, a managing director with Fulcrum Global Partners LLC.: “If the motivation to go public is to protect itself from legal problems, that’s a pretty thin investing prospect.

“There are plenty of good reasons, though, for MasterCard to do an IPO. It will gain cash to make acquisitions, invest in new technologies, and hire top talent at a time when the payments industry is becoming brutally competitive. New entrants such as Wal-Mart, PayPal, Google, and even mobile-phone operators are entering the fray. For example, Japan’s NTT DoCoMo Inc. plans to launch new cell phones next year that can function like credit cards, in partnership with Sumitomo Mitsui Financial Group, the world’s largest bank. MasterCard also plans to use fresh capital to become a better marketing machine, Ã la rival American Express Co. as well as to narrow the longstanding gap between its arch-nemesis, Visa USA.

MasterCard processed $1.03 trillion in transactions last year, less than half of Visa’s $2.27 trillion. AmEx is a distant third, at $414 billion.Visa, too, is feeling heat from the lawsuits. On Oct. 20 its board approved a plan to change the company’s governance structure by replacing bank executives with eight independent directors. Visa, however, will continue to be owned and controlled by its member banks.

Elizabeth Buse, Visa USA executive vice-president in charge of product development, says the company has no plans to go public, and she is unsure whether MasterCard’s reorganization “will afford it any more legal protections than Visa’s ownership and governance structures will afford Visa.”Both card networks will soon find out. They and their partner banks face their nastiest legal tussle over so-called interchange fees. These are the lucrative charges that banks and the networks collect from merchants every time a credit or debit card is used to pay for a purchase. Merchants typically pass these charges, which by some estimates add up to more than $24 billion each year, on to consumers in the form of higher prices.


Visa and Mastercard have argued for years that their fees are fair. U.S. regulators have yet to weigh in. But foreign governments have so far sided with the merchants. The Reserve Bank of Australia mandated lower fees in 2001 and the European Council and Britain’s Office of Fair Trading are considering regulation. Because of class-action laws that are unique to the U.S., legal and credit-card experts here anticipate an ugly battle between lawyers representing the merchants and the banks. “It’s a civil war,” says MacDonald, who argues that the government should step in.

Even MasterCard’s best customers are making things tough. As banks and merchants each consolidate, they are negotiating lower processing rates, thereby squeezing its margins. And as they shed their member status, big banks such as Citi and JPMorgan Chase will finally be free to promote their own brands over the network. This is no small issue. A huge portion of MasterCard’s revenue is concentrated among its five largest customers.

For the first six months of 2005, these customers represented $485 million, or 34% of revenues. The loss of any one customer could hurt the business. Already, Citi and GE Consumer Finance have announced they will issue rival American Express and Discover cards.The timing of the IPO seems to be working against MasterCard, too. Financial companies have made up almost a fifth of IPOs in the last few years as newcomers have benefited from low interest rates.

Returns for 2005 listings have been decent, up 7% vs. the S&P’s 3.5% gains. But consumer credit quality is faltering and personal bankruptcies are up. The value of MasterCard going public? Hard to say.

By Mara Der Hovanesian, with Justin Hibbard in San Francisco. [source: BusinessWeek]

MasterCard Inc®. IPO, "The Ultimate Hedge Against Litigation" (

November 29, 2005

[ed note. On May 16, 2006 noticed that MasterCard Inc.® had posted mention of the merchant litigation on its website. The below commentary was authored in Nov 2005].

At first read, you would think that because MasterCard Inc. ® Shareholders approved the planned initial public offering (IPO) that would be good news. But, when you understand that the credit card association’s shareholders are the 1,400 banks which own the credit card cartel, new questions arise.

Even the company’s CEO indicated part of the reason for selling out to the public is to remedy its multi-billion dollar antitrust interchange fee litigation. This planned $2.5 billion IPO might hedge against future litigation, but does nothing against the price fixing class-action case going back to the early 1990’s.

The Credit Card Interchange Report – strives to raise significant attention during the due diligence process.

In addition to this link related to the MasterCard, Inc.® IPO, we are equally focused on these concerns:

1) Why does MasterCard® continue to not post mention of the scores of antitrust suits on its website?

2) Why would the public be interested in risking their capital on a this scheme to reduce the banks risk?

3) Click here for The Credit Card Interchange Report – column on this issue.


Credit Card Service Charges Often a Mystery for Merchants (Alaska Journal of Commerce)

November 29, 2005

By Melissa Campbell; Alaska Journal of Commerce

Sunshine Sports owner John Bice freely admits it: He has next to no idea what all those charges and fees are on his monthly merchant services statement.

“It’s incomprehensible,” he said. “But it’s just part of the costs of doing business, an increasing cost. You just suck it up. It’s not like we have bargaining power.” He’s not far off, say those in the business of credit and debit card processing.

“It’s all very confusing,” said Mark Lawrence, relationship manager with Heartland Payment Systems, a company that provides merchant services to businesses. Heartland is one of the nation’s few third-party administrators of merchant services to openly discuss the processes and the various fees relating to accepting debit and credit cards. And even Lawrence doesn’t know it all.

Many merchants open their monthly statements and quickly develop this befuddled expression. There could well be 15 or more different types of fees, depending on how many different types of cards the business accepted that month. There are also various processor fees and something called discount per item fees – a seemingly oxymoronic term that no one seems to know much about. (Attempts to contact Visa Corp. for information about the fees were unsuccessful.)
And those rates and fees can change with little or no notice.

“They make it as absolutely confusing as possible,” said Marx Brothers Café co-owner Jack Amon, who has been in business for 30 years. “That’s why a lot of people fail in small business. You think you can cook great, then no problem. But you have all this other little stuff to deal with too.”

Customer demand dictates that businesses take credit and debit cards. Debit card transactions have now topped the number of checks written to merchants. What are all these fees, and how are small-business owners supposed to know if they’re being overcharged?

Finding help – especially from an entity that has nothing to gain by ending the bewilderment – is difficult. Web searches on the issue on the national Small Business Administration, the Small Business Development Corp. and the Chamber of Commerce – all organizations that strive to help small companies – came up empty.

Though they don’t consider themselves experts, Gene Fairbrother, lead small business consultant with the National Association for the Self Employed, and Amon had some common sense tips on shopping for merchant services. Heartland’s Lawrence also provided some ideas.
The first step to finding a merchant services provider is to ask businesses around you who they use, Fairbrother said. Also, check with your local trade association to see if it has brokered a deal with a processor. Many trade associations have agreements with processors and have bargained for reduced rates and fees for their members.

Before signing a contract, shop around and compare the fees. This is probably the most confusing part of accepting cards. “Merchants should shop three to five processors, and tell them you’re shopping,” Fairbrother said. “That way, business owners tend to get more information, and that increases the learning curve.”

When businesses want to accept credit cards, they go to a bank or a third-party administrator, which is a processor that resells the service for the credit card companies. Amon said he used Wells Fargo Bank for merchant services for years, but the bank raised its rates to a point that he felt was too high. So he started shopping around.

He called Heartland because that organization is associated with the Alaska Cabaret, Hotel, Restaurant and Retailers Association. In the end, Amon signed up with Electronic Merchant Services, an Outside company, but in talking to Lawrence, Amon said the process became much clearer. Lawrence suggested asking the merchant services salesman for a list of every fee that may be applicable to your account, and for how long those rates would be guaranteed.

An array of fees

Businesses that accept cards – credit or debit – are charged fees for every transaction. The fees are called interchange rates, and are a percentage of the value of the transaction. That percentage is different for various types of businesses: restaurants are charged different interchange rates than a department store, for example.

In addition to the interchange rate, each transaction is also charged fees that go to pay the merchant services provider and something referred to as a discount per item fee, which is paid to the credit card company.

The rates may change for small purchases, $15 or less, purchases of between $15 and $25, and for $100 or more.

The average interchange rate ranges from 1.12 percent to about 2.8 percent, Lawrence said. The interchange rates vary depending on whether a credit or check card is used, whether it’s swiped or hand-entered into a system, and if you have the customer’s billing information. There are different fees for the various credit cards – awards cards (such as airline miles), signature cards (various rewards cards), corporate cards or just a plain bank-issued credit card.
The lowest rate is given for PIN-entered debit card purchases that typically incur the merchant a flat fee. Signing for a debit transaction puts the sale into the interchange rates and comes in at a slightly higher fee.

The processing company serves as the middleman for the transaction, taking care of the money transfers between the customer’s and merchant’s banks, and between Visa and the merchant. The company charges a fee for that service, about a nickel. Overall, the processor generally keeps 15 percent of all the fees, while Visa or Mastercard receives 85 percent, Lawrence said.

At the end of the month, the business owner gets a statement displaying the total transactions and the various fees. While talking to the salespeople about the services, ask too about equipment costs. Processors generally encourage leasing equipment. Determine the costs of leasing versus buying. Fairbrother said that leasing the slide card terminal can cost upward of $1,000 during the term of a contract, where buying a terminal may be closer to $300.

Once deciding on a provider, get out the magnifying glass and carefully read the entire contract, Fairbrother said.

“The person who finds the information confusing is probably also the person who hasn’t read the information and understands it,” he said. “Business owners don’t read the contract, and it has everything in there. They say they don’t have time to read a 20-page, small-print document. Credit card companies are more complex and (extra charges) come after the fact. But you should understand what all those charges are, and they are in the contract.”

As with any business decision, make sure to sign up with someone you feel you can trust, Fairbrother said. “Make sure they are giving you a fair value,” he said. “They may not be the cheapest, but they will treat you right.”

[source: Alaska Journal of Commerce]

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November 27, 2005

With the law against them and their customers against them, the banks begin argung that Congress should come to their rescue.

With scores of antitrust suits against Visa and MasterCard, and more than 150 posting below this one from the Credit Card Interchange Report –, the Nov. 25th Commentary in The Boston Globe by Phil Kerpen (policy director for the Free Enterprise Fund) demonstrates why this $25 billion annual hidden tax is so divisive.

The commentary was written by the Free Enterprise Fund (“FEF”), a fledgling Washington-based conservative think-tank and lobby group. Their prior campaign was running pro-DeLay TV ads.

Columnist Terry M. Neal in the Washington Post explained more about FEF: “The conservative Free Enterprise Fund, a Washington-based group that promotes conservative economic policies, is underwriting a national ad campaign aimed undermining District Attorney Ronald Earle’s credibility. And because it is reportedly running in especially high concentration in the Austin market, where the DeLay trial will be held, it’s clear FEF is trying to influence the jury pool.”

Mr. Kerpen fails to mention anything about our nation’s antitrust laws and why price-fixing is illegal. His lobbying group should know that retail and ecommerce merchants have no option, MasterCard and Visa must be accepted or they will be out of business. Even the FEF accepts contributions using the Visa and MasterCard payment system. Their supporters who pay monthly with automatic deductions on their cards pay interchange fees with every individual charge. But, contributors to FEF who pay by charge card once a year incurs a single interchange fee.

While American Express and Discover cards are not party to this litigation, they too will be influenced as the interchange fee disappears and they too will be forced to lower their rates.

As the Credit Card Interchange Report – boasts an arsenal of facts and strength in knowing that merchants and consumers both are rallying to cease these illegal pricing schemes, groups like FEF simply want Congress to handle this matter.

[source:; Click here to view The Boston Globe FEF Commentary]