Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates
*Giant Print: “…you could WIN a $1,000 Shopping Spree!*”
Tiny print: “PIN-Based … Transactions Ineligible”
MasterCard® and Visa® delight when you have debit cards in your wallet, but, just don’t think of actually using it as a PIN-based card.
Yesterday, a reporter for a leading U.S. daily newspaper asked us about debit cards. We explained how the game works and how some promote the use of debit PIN cards as a budgetary tool – you cannot spend what you do not have.
But, in many cases, the word “debit” is cleverly positioned within the card’s hologram or printed in a color so similar to the background that it is challenging for clerks to identify whether the card is a PIN-based debit card or traditional Signature credit card.
While your funds are quickly withdrawn from your bank account, the retailer, nonprofit organization and other entities offering electronic payments face a host of wide-ranging fees. If a PIN- based debit card is used, there is typically a fixed cost per transaction. It could be as low as 25-cents. However, if the card is processed as a traditional Signature credit card, the banks and card associations get a piece of the action – in a big way. They reap a percent of the total sale which averages about 1.7% in the U.S., but, the fee can go much higher – there are nearly 100 separate interchange fees. To sample the variety of separate interchange fes, click here.
[Although unsure of his math, yesterday, Jim Cramer opined on RealMoney.com that MasterCard gets a “10-cent cut of every charge.” However, from prior news articles, it was reported that the two leading card associations are not the benefactors from the interchange fees, but rather its member banks, which own(ed) the associations (pre-MasterCard IPO). Is this the ultimate shell game? According to CNN, MasterCard “…which doesn’t deal with consumers directly, makes money from the fees it charges its bank customers for processing credit- and debit-card transactions and providing other payment-related services.]
During the holiday season, if you make a charitable contribution or win a silent auction item, you are likely to pay much more. Why? Take a look at the typical silent auctions hosted by non-profits. It takes might take place in a hotel and when the winning bids are processed, the organization might only have access to a credit card imprinter, rather than an electronic terminal. When they swipe your card under the stack of carbon-copy receipts, the interchange fee could be 5% or more.
Back to the reporter, I explained the incredulity of how Visa and MasterCard lure’s cardholders in then creates restrictive barriers.
*A full-page co-branded advertisement in today’s local paper for Bed Bath & Beyond and MasterCard explains how the game works. It offers an opportunity to “win a $1,000 shopping spree” when you use your MasterCard card at BB&B. But read the fine print rules. “PIN-based and International Transactions [are] Ineligible.”
Here is another look at a similar speepstakes scheme from last summer.
PIN-based cards are not welcome. Even with the slim – very slim chance of winning the $1,000, the rules preclude you from using a PIN-based card. You can enter without purchase, but just don’t use your PIN card.
[Source: commentary, WayTooHigh.com]
Retailers Join Commerce Commission in Taking Court Action Over Credit Card Fees
Seven New Zealand retailers today launched legal action against a number of credit card institutions, seeking damages from breaches of the Commerce Act The move follows the recent decision by the Commerce Commission to bring its own court proceedings over the alleged price fixing of interchange fees by these institutions.
In a statement of claim filed in the Wellington High Court today, the retail group (comprising Foodstuffs, Progressive Enterprises, Dick Smith Electronics, Farmers, Noel Leeming, Whitcoulls and Mississippi) alleges that the fixing of interchange fees is anti-competitive and should not be allowed to continue. Theretail group is also requesting that the Court award damages to reflect the losses they have incurred as a result of the breaches of the Commerce Act and compensate for alleged over-payment of fees.
The legal actions brought by the Commission and the retail group will, if successful, enableall retailers to reduce their cost of operations and thereby benefit their customers. John Albertson, Chief Executive of the NZ Retailers Association said, “Credit card fees cost New Zealandconsumers and businesses over $350 million every year.”
The separate actions brought by the Commerce Commission and the retail group follows recent regulatory action by the Reserve Bank of Australia in relation to interchange fees and the scrutiny of such fees in a number of other jurisdictions around the world.
[Source: via Scoop Independent News, press release]
Excerpt: …Mitch Goldstone, President of 30 Minute Photos Etc. and co-editor of WayTooHigh.com, said the card Associations “have all their oars in the water now, but the current is too great,” referring to the swell of merchant anger over discount fees. Goldstone is a plaintiff in the class-action lawsuit brought by merchants against Visa and MasterCard.
If I, myself, as the lead plaintiff have not a clue what these rates are, … how are merchants going to figure it out?” Goldstone said. “The disclosure I want to see is the exact [interchange] fee on every credit card receipt.”
Goldstone is advocating that bankcard receipts be imprinted with exact interchange fees per transaction by Nov. 24, or “black Friday,” as it is known in retail circles for being one of the busiest shopping days of the year. “It would signal an important message to retailers that [the Associations] indeed are concerned about cardholders and retailers,” Goldstone said.
[Source: via The Green Sheet]
"The Day May be Coming When Cell Phones Will Replace Credit Cards, Cash and Checks" (The Mercury News)November 26, 2006
One of the most visionary profiles about new electronic payment solutions was reported on today (Nov. 26) by Mark Schwanhausser in The Mercury News.
Several new products, from using cell phones to magnetic chips could speed up payment transactions. The result will reduce costs, fraud and speed up transactions.
However, the article also reminds us of GM and the electric cars. Before the Prius, a decade ago, an efficient, non-emission electric car used technology to reduce dependence on petroleum. History showed us what happened when giant cartels stepped in to protect their fiefdom.
What will happen this time as new technologies increase efficiencies and lower costs for electronic payments? Richard K. Crone, founder of Crone Consulting in San Carlos, commented in the article that running a debit or credit transaction through a network like Visa or MasterCard costs [merchants] 1 percent to 6 percent of the purchase price in so-called interchange fees.
Currently, there is deficient competition, as Visa® and MasterCard® controls a staggering 80% of the U.S. card market, according to ATM Marketplace. As technology cuts down costs while increasing efficiencies, it becomes clearer why the banks and card associations stand accused of illegal price fixing. How can interchange rates be as high as 6%, according to Mr. Crone, when new products are poised to change this leaking system. [Interchange was designed to cover the costs of a four-party system when antiquated credit card imprinters and carbon-copy receipts required manual payment processing].
While the new technologies and cost savings are visionary, reading between the lines of the article has the makings for a sequel to the documentary, Who Killed the Electric Car – and the depth’s big business might assert to protect their cash cow.
[Source: WayTooHigh.com, via The Mercury News]
The member banks, in the same crib as Visa® and MasterCard®, have such oppressive regulations which may have forced the city of Boston to cease use of its high-tech credit and debit card-accepting parking meters. The new meters will no longer process electronic payments as they evaluate the interchange fee charges.
The Boston Globe reported earlier this week that the City was unfamiliar with the minimum card fee requirements. The member banks involved with this scheme should have wondered how the municipality was going to afford the interchange fees on a 5-cent charge so a parent can run in to the convenience store for a gallon of milk.
The Globe staff reporter, Bruce Mohl had interviewed us for background on his follow-up Nov. 22nd article. Mr. Mohl, like apprently the City was unaware of the onerous interchange fees and the myriad of regulations forced on merchants – and municipalities. This is not unusual however, as we regularly encounter cardholders and retailers who are equally confused too. According to The Boston Globe, the city’s commissioner of transportation remarked that “with every transaction, there’s a transaction fee.” Not so. What is the interchange fee for writing a check – even though there are clearing and other costs? Zero. What is the interchange fee for using a PIN debit card in Canada? Zero. What is the interchange fee in several economically less developed nations than the U.S.? Not zero, but in many cases less than half the 1.7% average fee charged to process credit cards in the States.
Boston Globe Quote: “Mitch Goldstone , a small-businessman from Irvine, Calif., who is the lead plaintiff in a lawsuit challenging the fees charged by credit card companies, said Boston could end up losing money if it lets people charge for whatever amount of time they want. “If a motorist can park and run into a shop for five minutes and pay, say, a quarter on their credit card, the city is in trouble,” he said. “They will be potentially paying more to Visa and MasterCard than they take in.”
We wonder whether the City will send a bill to Visa and MasterCard and its member bank for potentially not being upfront and clearly commenting on the fees before the $10,000 fee for each parking meter investment occurred? Fine print on a contract is one thing, but installing parking meters without asking the city how they expect to make money after subtracting the interchange fees is another.
Next week’s Micro and Small Payments Conference in New York City boasts an opportunity to raise these questions of the banks and payment processing companies. In many cases, the two are the same – ever since JPMorgan Chase acquired Paymentech to force a larger piece of the pie.
[Source: WayTooHigh.com, via The Boston Globe]