Interchange Fees: From $40,000,000,000 to Zero

One of the disruptive forces in electronic payments are micropayments.  It helps draw attention to the argument that interchange fees are now obsolete.  What currently represents a $40 billion hidden tax on retailers and consumers is destined to implode due to technology, and hopefully, our merchant interchange antitrust complaint against Visa, MasterCard and its leading member banks.

As we assert, while the defendants were conspiring to illegally fix prices by agreement and create anti-competitive practices, they lost hold of technology.  Today, nearly everything is faster.  Look at the payment network and its low-value electronic financial transactions’ micropayments – which represent charges from a few cents to a dollar or two.  Whether it is paying for a parking meter, McDonald’s meal or a newspaper from its newsstand rack, you can find more places today to charge for small transactions.

While the actual cost to transact an electronic payment is tiny, Visa and MasterCard think that using their 80% market power and payment network should enable them to have variable fees.  If they are able to effectively connect the issuing and acquiring banks and process the payment for a Big Mac for pennies, how can its member banks justify a $40 billion annual interchange merchant tax that is no longer cost based?

Even our company has a fixed rate for our newest technology, super-fast photo scanning. Whether you order just one or one-thousand analog pictures to be digitized, ScanMyPhotos.com charges a flat-fee of just $49.95 [and that includes our interchange payments too].  Point is that the new, super-fast photo scanning service we created involves about the same level of work to scan one or one-thousand pictures, and that is the question to Visa and MasterCard.  If the incremental network cost to process an electronic payment to buy a newspaper or a Rolex watch is about the same, other than illegal price-fixing, how can the financial institutions and credit card associations justify their fee structure?

Payment Card Fees Make No Sense, And Here’s Why

Have MasterCard and Visa pulled out of the Australian market?

Hardly.

But, studying their fee schedules in Australia raises very clear questions:

1) With rates less than half as much as in the U.S. how can they afford to stay in business? 

2) Why are rates so much higher in the U.S? 

3) Why are some fee categories entirely derailed from reality?  

4) Charitable organizations in Australia pay no interchange fees (zero), yet in the U.S., interchange rates can be as high as 4% – 5% for some non-profit donation due to various fees, such as manual card imprinting and payment terms. 

Fact: The standard commercial interchange fee in Australia is under 0.50%, while it is nearly 1.70% in the U.S. 

Here are more facts as outlined by MasterCard on it’s website. Click here to view the “MasterCard Domestic Purchase Transactions Interchange Fees for Australia.”

Click here to view Visa’s similar fee structure.

Overview

According to the MasterCard website, here are some of the posted fees that “apply to MasterCard purchase transactions in Australia where the card issuer and merchant acquirer are both Australian members.”

MasterCard Credit Card Transactions

Interchange Category	Interchange Rate (inc. GST)
Charities	0.00%
Tiered Merchants	0.374%
Governments and Utilities	0.33%
Petroleum	0.374%
Recurring Payments	0.33%
Quick Payment Service	0.33%
EMV Premium	1.265%
EMV Commercial	1.485%
EMV Consumer	0.693%
Commercial	1.265%
Consumer Premium	1.045%
Consumer Electronic	0.473%
Consumer Standard	0.473%

Debit MasterCard Transactions

Interchange Category	Interchange Rate (inc. GST)
Charities	0.00%
Tiered Merchants	$0.04
Governments and Utilities	$0.32
Micro-payments	0.55%
Petroleum	$0.10
Recurring Payments	$0.10
Quick Payment Service	0.55%
EMV Commercial	$0.45
EMV Consumer	$0.15
Commercial	$0.40
Consumer Electronic	$0.10
Consumer Standard	$0.40

Zero Merchant Credit Card Interchange Fees: Right On!

Credit card charges face RBA scrutiny
NEWS.com.au – Australia
The country’s two biggest retailers, Woolworths and Coles, presented their case for a zero interchange fee policy and regulation, while the banks and …

This is amazing. The banks and MasterCard suggest that zero interchange fees threaten innovations. Really. As a point of fact, we, as lead plaintiffs reinvented our business due to innovations.  In January, at the Intl Consumer Electronics Show in Las Vegas, we are again presenting and speaking on how technology and innovations have increased efficiency and lowered costs; that is for everything but merchant interchange fees.  The member banks, along with Visa and MasterCard’s argument is weak and antiquated.

Click here for more info on the recent News.AU.com article.

“Cost of Credit Cards 10 Times Cost of Paying Cash” (Sydney Morning Herald)

According to the Sydney Morning Herald, “BANKS charge customers up to $2 for using teller machines other than their own but the cost to the bank is 74 cents, the Reserve Bank said yesterday in the most comprehensive study yet undertaken into the costs of paying for things.”

It is nice to read that what we have been championing for nearly three years is now mirrored overseas, as other retailers also argue that “interchange fees should be abolished,” according the the SMH.

Click here to view article.

Even More Hidden Credit Card Fees

We’re pausing for a moment from our mission to invalidate the merchant interchange fees to identify yet another windfall for Visa and MasterCard.   Have you seen those Visa and MasterCard gift cards that you can purchase?

The first round of hidden fees is when you charge those “gift” cards to your credit or debit card.  As you swipe your card, the merchant is charged one of the nearly one-hundred interchange fees, which could be as high as 3-5 percent of the transaction.

The next charge is one what we just experienced.  A friend presented us with a $25.00 charge card gift.  After several uses, there was about a $2.00 balance, but when we presented the card at Starbucks, the Barista explained that the card was not accepted.  That was an uncomfortable moment, but one that generated this question: what happens to the millions of dollars in change that is accumulated on this gift cards?  What do you do when the balance is too low for ordinary redemptions?  When consumers discard the cards with a few cents or a few dollars remaining, the card associations and issuing banks make even more windfall profits.

Just how much money each yet is never cashing in from those gift cards and add that to the total cost of each electronic payment transaction.

[Commentary: WayTooHigh.com]

   

Citigroup, America’s Largest Bank Sells 4.9% to Arab Interest

Click here to find out more about Citi’s largest shareholder [via Bloomberg].

Are Visa and MasterCard Merchants Violating Their Rules?

From the Visa and MasterCard merchant requirements, it is clear that many retailers regularly violate their rules, but we are still unfamiliar with how many are penalized.

At 30 Minute Photos Etc., ScanMyPhotos.com and our online ecommerce business, if a picture-taker orders a single 4×6″ photo online, for instance, we charge 26-cents.  But the electronic payment fees are substantially more than that.  As the lead plaintiff in the merchant interchange litigation and as a Visa and MasterCard customer, we are careful not to violate the minimum payment requirement.  But, what about others?

From the Rule for Visa Merchants website listing for card acceptance [page 9], it clearly explains that: “Dollar Minimums and Maximums: Always honor valid Visa cards in your acceptance category, regardless of the dollar amount of the purchase. Imposing minimum or maximum purchase amounts in order to accept a Visa card transaction is a violation of the Visa rules.”

The question is why are merchants, especially non-profits still posting notices requiring minimum payments?

The concern is that record high merchant interchange fees are causing retailers to create their own rules to help soften the effects of these fees.  Previous WayTooHigh.com articles identified groups which blatantly impose minimum charges on their website. 

Test for yourself: when you visit a “mom and pop” store take a look and see if they have a handwritten notice requiring a minimum payment.

Related blog posting: “Requiring minumum credit card purchase is a violation.”

CBS “60 Minutes” Program Takes on Credit Cards

Click here to view the CBS “60 Minutes” Credit Card profile [originally aired Sunday, Nov 25]. 

The real “high tech heist” is perpetrated by Visa, MasterCard and its thousands of member banks who are charging $40 billion dollar each year in hidden fees.  The card associations will challenge our argument by explaining their fees are transparent. But, they are wrong. 

How wrong? 

Click on the links for Visa and MasterCard below and see if you can figure out what merchants are charged by Visa USA and MasterCard from their website’s fee schedules, but make sure you have lots of coffee and time…

The National Retail Federation was also interviewed for this “60 Minutes” segment. 

U.S. Chamber of Commerce Silent on Interchange Fees. Why?

As a longtime member of our local [Irvine] Chamber of Commerce [since 1990] we are wondering why the U.S. Chamber has not played a more active role in our battle against Visa, MasterCard and its thousands of member banks?  Could it be that the member banks are more active and well-funded members than 30 Minute Photos Etc. and ScanMyPhotos.com?

The closest to informational activism we came across was from a search of the word “interchange” which linked to this advisory written by one of the nation’s card processor’s, so really not much meat there. 

From the US Chamber website:

 Representing your ideas—and interests—in Washington for nearly a century.

The U.S. Chamber of Commerce is the world’s largest business federation representing more than 3 million businesses of all sizes, sectors, and regions. It includes hundreds of associations, thousands of local chambers, and more than 100 American Chambers of Commerce in 91 countries.

Whether you own a business, represent one, lead a corporate office, or manage an association, the Chamber of Commerce of the United States of America^®  provides you with a voice of experience and influence in Washington, D.C., and around the globe. Our core mission is to fight for business and free enterprise before Congress, the White House, regulatory agencies, the courts, the court of public opinion, and governments around the world.

From its headquarters near the White House, the Chamber maintains a professional staff of more than 300 of the nation’s top policy experts, lobbyists, lawyers, and communicators. The Washington staff is supported by eight regional offices around the country; offices in New York and Brussels; an on-the-ground presence in China; and a network of grassroots business activists.

Our members include businesses of all sizes and sectors—from large Fortune 500 companies to home-based, one-person operations. In fact, 96% of our membership encompasses businesses with fewer than 100 employees.

Mission Statement:

“To advance human progress through an economic, political and social system based on individual freedom, incentive, initiative, opportunity, and responsibility.”

Programs and Affiliates

• The National Chamber Litigation Center—our law firm that defends business interests and sues government agencies.
• The Institute for Legal Reform—the Chamber affiliate that challenges lawsuit abuse on many fronts, fights for legal reform legislation, and educates voters in state judicial and attorney general races.
• The National Chamber Foundation—our public policy think tank that drives the debate, develops the data and arguments, and influences policy options on the most critical business issues.
• The Political Program—the Chamber’s aggressive political action component that endorses, supports, raises money, and turns out the vote for pro-business congressional candidates from both parties who are engaged in key races.  
• Business Civic Leadership Center—an organization devoted to facilitating corporate civic and humanitarian initiatives.

Interchange Fees are Obsolete as VHS Video Tapes

During the holiday season, look around.  Can you find any VHS cassettes to record television programs on?  How about super-8mm movie film?  8-track tapes?  3 /12″ floppy discs?  Catching on?

Merchant interchange fees are one of the few holdouts from the pre technology explosion, from before TiVo, MySpace, Youtube and the iPhone.  The electronic payment network is today what computer storage devises were years ago.   With consumers increasingly relying on their computers to safe keep their valuable digital libraries, Western Digital’s My Book storage system provides users a safe place to secure up to one terabyte (1 TB) of digital content.  In the mid-1990’s that hardware would cost about a million dollars and fill an entire room, today it is under $500 and is the size of a few cell phones.   With “Moore’s Law”, technology is getting faster and prices cheaper.  Except, when you have unbridled market power and control a system that is obsolete.  It is like a drug addict who only knows how to stay in a daze. 

But, we are awaking Visa and MasterCard and reminding them that their once impenetrable interchange fee fiefdom is on the verge of distinction.  Other countries have got smart and demand rates be lowered, in some cases to a tiny fraction of those fees in the U.S., even though our nation is among the most technology advanced, our communications infrastructure should mean it costs less to transmit data, and third-world fraud rates have to be higher, yet they too pay a tiny fraction of our near record merchant interchange fee prices.  Technology today is so super-fast, just like our high speed ScanMyPhotos.com picture scanning – we cannot help but lower prices. 

Even though the banks are reporting huge problems from its mortgage mess, they would not be allowed to wield their anti-competitive power to artificially hold up what are now obsolete fees to help cover their other mistakes.  We understand that only about 13% of all interchange fees are used to actually cover the transactional costs. 

[Commentary: WayTooHigh.com] 

lead Plantiff, Mitch Goldstone to Address CES

The co-founder of 30 Minute Photos Etc and ScanMyPhotos.com will be announcing in December that he was invited to again address CES: the Consumer Electronics Show in Las Vegas in early January. This is the world’s largest consumer trade show and is the second year that Mitch Goldstone has been invited to present.  As a well-known photo imaging industry speaker, he regularly explains how technology has changed the entire photo imaging industry and created entirely new revenue centers, such as the super-fast nationwide photo scanning service which his company has become famous for.  He expects to again use the example of how credit cards were once cost-based; requiring extensive paper work, thick carbon copy receipts and manual imprinter machines.  Today, just as with his photo imaging and scanning business, everything is lightening fast and much more cost effective.  What he once charged $5.00 for is now low as 2.5 cents.  Conversely, the member banks are accused [by us] of continuing to conspire to illegally fix billion of dollars in fees; fellow retailers are forced to accept whatever charges are demanded.  As a retailer and ecommerce business, 30 Minute Photos Etc. and ScanMyPhotos.com are beholden to Visa and MasterCard and their 80% market power.  Most ecommerce businesses are forced to accept those two leading payment cards to stay in business.

More details on CES in December.

 [Source: WayTooHigh.com]

Will Visa USA’s “Consumer Education” Tool be Silenced During Their IPO?

Americans for Consumer Education and Competition, Visa USA’s PR and advocacy machine, which “has the financial support of Visa USA” has been quiet of late. 

Normally that are countering our comments and issuing press releasesthat taunt millions of merchants which accept Visa’s network of electronic payment cards.  They explain how helpful debit cards are and how it helps train teens about conserving money.  However, we wonder whether Visa’s Washington D.C.-based tool will pull up tent and move on, as their source of funding is required to lay low during their planned IPO period?   When industry experts begin to question why any investor would want to purchase equity in a company that faces possible insolvency due to their pending litigation, the company can be voiceless.  One of their most comical press releases appeared right after our first class-action complaint in 2005.  This one was adorable: they suggested that our litigation would force consumers to pay more. Instead, over the years, the member banks have vastly raised their rates and today we are paying $40 billion in hidden interchange fees each year.  They failed to mention that while their release provoked the courage to demand that consumers need efficiency and choice, Visa is the giant monster which, along with MasterCard control, 80% of the total electronic payment network and the only thing that is efficient is how easily they can fix prices and practice anti-competitive illegal maneuvering to enrich their pockets.

Also notice how convenient it is for the giant card association to be wedged in the midst of a “quiet period” imposed by the Securities and Exchange Commission.  Visa will be unable to comment when the EU Fair Trade ruling is announced within the next few weeks.  They will also have to be silent as more and more merchants question the foundation of the interchange fees.  They will have to be silent as motorists ask why Visa is reaping windfall profits for its member banks during our economic energy crisis.

[Background: When The Bill Comes Due,” Businessweek]

[commentary: WayTooHigh.com]

No Interchange Fee on Gift Cards

Especially during the holiday season speedily encroaching, more retailers are expected to promote their own electronic payment gift cards. Billions will be spend by consumers to purchase plastic gift cards that are unassociated with the electronic payment network.

In parallel to the two leading credit card associations, these cards share many of the same transaction and production costs, yet they are without interchange fees. Just like when writing a check, or using a debit PIN card in Canada, gift cards also abolished traditional interchange fees. 

The retailers understand the value of the cards without imposing those hidden fees that MasterCard and Visa demand.  But, if the card associations challenge our view by explaining that the fees are not hidden – they do post the fees on their website. We challenge them to find a large group of merchants who ever visited those pages and can easily understand the more than one-hundred pages of fees and schedules.

For our business, when a consumer wants a box of 1,000 photos scanned to a DVD, we charge $49.95. Period. ScanMyPhotos.com does not have a hundred page fee schedules. We cannot, after all – we are not controlled by thousands of banks and we do not illegally fix our prices by agreement with others.

Visa® and MasterCard® might argue that their member banks are part of a four-party system, with issuers, acquirers, cardholders and retailers all involved with each transaction. A retailer offering gift cards limit the activities and also much of the expense. However, when Citigroup, JPMorgan Chase and Bank of America, for example, are both the acquirer and issuer, they are getting paid more.  Even realtors selling homes who are on both ends of a residential property sale adjust their fees downward, when they represent both parties.

While gift cards are without interchange fees, the banks are reaping extraordinary windfall profits from an antiquated payment system and because most consumers and merchants are entirely unaware that this is a $30 billion dollar annual scheme which Visa and MasterCard designed, control and are fighting to protect.  And, worst yet. How do most consumers pay for those interchange-free gift cards?  That’s right: with Visa and MasterCard, so the banks garner more windfall profits, even as retailers do not.

Why Credit Card’s Can Be Scrooges During The Holidays

Actually, the charge card associations and their member banks can be scrooges year-round.

During the holiday season it can be particular oppressive to non-profit charitable organizations which accept electronic payment donations. They can pay upwards of 5% in interchange fees when benevolent donors present their cards.

Don’t use credit cards to support non-profits. And, even when you do, many are then in violation of their payment agreement, as often times they require a minimum donation. Regular retail businesses would be quickly disenfranchised from their MasterCard and Visa association if they required a minimum. But, we can’t imagine the two networks sending a cancellation notice to, for instance, The American Red Cross – even though they post on their website that there is a $5.00 minimum donation.

Most charities accept donations by credit card in order to facilitate giving by donors. However, keep in mind that charities usually have to pay the resulting merchant interchange fees, which can be as high as 5%. Of course, using a credit card to give is better than not giving at all, but better still is a gift by cash or check.

“Wall Street’s Money Machine Breaks Down” (via Fortune)

If you thought our more than 800 news and commentary postings provoked outrage against the banks, this Fortune Magazine cover story is remarkable.

We can’t help but think that the giant $40 billion annual merchant interchange piggy-bank will be used to bail out the member banks’ other financial woes.  And, think of the planned Visa IPO and further proceeds that the banks will grab onto as they unload part of their liability and ownership in their giant electronic payment network. 

But, why exactly are they allowed to use these payments which were initially designed to be cost-based, for filling the holes in their breaking levees?

“Banks Gone Wild”

New York Times’ columnist, Paul Krugman wrote on Nov 23rd about how out-of-control the banks’ leadership has been related to the subprime disaster.  His commentary is helpful for understanding just how marginalized was their thinking.

 [Source, Via NYTimes, click here to view column]

Thanksgiving Travel: Record Gas Prices Leads to Extraordinary Hubris

More than a year ago, MasterCard Worldwide proclaimed they planned to establish a $50 cap on the fees gas stations pay to process consumer credit cards at the pumps.  Whatever happened to that program? Did they initiate the interchange fee limit, or was it just hot air? 

And, what about Visa’s program to limit interchange fees at the pumps?

With gas prices soaring to record levels, we want to know what happened.  And, that leads to the larger question: if MasterCard does agree to limits interchange fees at service stations, how about at the corner convenience store and million of other locations that also accept their cards?

[Commentary: WayTooHigh.com]

“First Data To Fire 1,700 Employees”

Click here for Digital Trasactions article.

Why Visa, MasterCard and its Member Banks Are Accused of Illegal Price-Fixing by Agreement

We found this very simple defination of price-fixing on the Wikipedia site [click here for more info].

Price fixing is an agreement between business competitors to sell the same product or service at the same price. In general, it is an agreement intended to ultimately push the price of a product as high as possible, leading to profits for all the sellers. Price-fixing can also involve any agreement to fix, peg, discount or stabilize prices. The principal feature is any agreement on price, whether express or implied. For the buyer, meanwhile, the practice results in a phenomenon similar to price gouging.

Methods of price fixing will include selling at a common target price; setting a common “minimum” price; buying the product from a supplier at a specified “maximum” price; adhering to a price book or list price; engagement in cooperative price advertising; standardizing financial credit terms offered to purchasers; using uniform trade-in allowances; limiting discounts; discontinuing a free service or fixing the price of one component of an overall service; adhering uniformly to previously-announced prices and terms of sale; establishing uniform costs and markups; imposing mandatory surcharges; purposefully reducing output or sales; or purposefully sharing or “pooling” markets, territories, or customers.

Generally, price fixing is illegal, but it may nevertheless be tolerated or even sanctioned by some governments at various times, particularly among those whose countries are developing economies. See also Collusion.

In neo-classical economics, price fixing is inefficient: the anti-competitive agreement by producers to fix prices above the market price transfers some of the consumer surplus to those producers and also results in a deadweight loss.

In the United States, price fixing can be prosecuted as a criminal felony offense under section 1 of the Sherman Antitrust Act. ^[1] In Canada, it is an indictable criminal offence under section 45 of the Competition Act. Bid rigging is considered a form of price fixing and is illegal in both the United States (s.1 Sherman Act) and Canada (s.47 Competition Act). In the United States, agreements to fix, raise, lower, stabilize, or otherwise set a price are illegal per se.^[2] It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit. In the United States, price-fixing also includes agreements to hold prices the same, discount prices (even if based on financial need or income), set credit terms, agree on a price schedule or scale, adopt a common formula to figure prices, banning price advertising, or agreeing to adhere to prices that one announces. ^[3] Although price fixing usually means sellers agreeing on price, it can also include agreements among buyers to fix the price at which they will buy products.

Under American law, exchanging prices among competitors can also violate the antitrust laws. This includes exchanging prices with either the intent to fix prices or if the exchange affects the prices individual competitors set. Proof that competitors have shared prices can be used as part of the evidence of an illegal price fixing agreement. ^[4] Experts generally advise that competitors avoid even the appearance of agreeing on price. ^[5]

Under U.S. law, price fixing is only illegal if it is intentional and comes about via communication or agreement between firms or individuals. It is not illegal for a firm to copy the price movements of a de facto market leader called price leadership, which has been seen to be the case in markets for breakfast cereals and cigarettes. But informal agreements or unspoken agreements to fix price also can violate the antitrust laws. The price-fixing laws apply to industries and professionals, for-profit concerns and non-profits and charities. ^[6] The United States Department of Justice Antitrust Division and United States Federal Trade Commission are responsible for enforcing federal price fixing laws; see also Sherman Antitrust Act. The Department of Justice handles both criminal and civil cases. As of 2004 under US law corporations may be fined up to $100 million for criminal price fixing; individuals can be charged and sentenced to prison sentences of up to 10 years for price-fixing violations. The Federal Trade Commission can prosecute firms for price fixing as a civil matter. Many State Attorneys General also bring antitrust cases and have antitrust offices, such as Virginia, New York, and California. Private individuals or organizations can bring their own lawsuits for triple damages for antitrust violations and also recover attorneys fees.

[Source: Via Wikipedia]

“Retail Bosses Call on EU to Crack Down on Card Fee Fixing”

The bosses of 14 major retail companies have signed a letter to the European Commission (EC) calling for a crackdown on the excessive charges which make Europe’s payment card companies 13 billion euro a year in revenue.

The retailers, who together have 250 million customers a week and include Asda/Walmart, IKEA, Kingfisher, M&S and Tesco say the Commission must order cuts in the fees card companies charge retailers for each transaction when it makes its, long awaited, ruling on the legality of the so called interchange fees.

The retail chiefs say the success of the Single Euro Payments Area (SEPA), to be launched in January 2008 and intended to create a Europe-wide system for efficient, low cost money transfers between EU countries, depends on the EC taking action to end MasterCard and Visa’s price-fixing.

Their letter argues if SEPA is launched with card companies allowed to continue the existing secretive and excessive charging regime; it could fail because the potential benefits to customers and businesses will be lost.

The British Retail Consortium (BRC), has led the fight against the charges, and long argued they are an unjustifiable tax on customers.

BRC Director General Kevin Hawkins said: “The Commission’s decision on these cross-border card charges has huge implications for individual and businesses throughout Europe. MasterCard has clearly been abusing its position to boost profits at massive cost to customers and retailers.

“The Commission claims its Single Euro Payments Area will do for card payments what the euro has done for cash but it will only deliver the cheap, easy system promised if MasterCard and Visa’s price fixing is ended.

“Retailers big and small are simply looking for a fair deal. With the new Area starting in less than two months the Commission must recognise now is the time.”

Notes to Editors
An interchange fee is the fee a retailer is forced to pay on each credit card transaction it accepts. Typically around 1 per cent of the value of a transaction, the fees cost retailers hundreds of millions of pounds each year. Some individual retailers pay tens of millions of pounds annually to credit card companies as a result of the fees.

The EC decision on the charges currently levied by MasterCard on cross border transactions within the EU is expected in mid to late November.

The joint letter to the EU Commission from 14 major European retailers was co-ordinated by the European Retail Round Table (which brings together senior figures in European retailing) and EuroCommerce (which represents European retailing and wholesaling businesses). 

[Source: British Retail Consortium, press release] 

Oil Jumps to Nearly $100, Generates More Interchange Fee Profiteering

With crude oil prices topping $99.29 a barrel, Visa and MasterCard’s member banks are reaping extra rich rewards this holiday season. Few motorists understand that a percent of most credit card transactions paid at the pumps goes to the acquiring and issuing member banks of the card associations’ electronic payment network.  As the global economy faces this economic energy crisis, the banks are reaping windfall profits. Why exactly are they able to charge a percent of each transaction, when the cost to clear an electronic payment is just about 13% of the total interchange fee cost?

But, there are more questions to also be asking this Thanksgiving holiday.

At supermarkets and other stores, you will find a variety of retailer gift cards.  Guess which ones include an “activation fee?”  That is right Visa, but not any of the restaurants, book stores or other merchants.  Why are the card associations able to charge an additional activation fee anyway?  The privilege of using their network, rather than dealing directly with merchants, like Starbucks generates even more fees for them.  

[Commentary: WayTooHigh.com]

“Long-Awaited Visa Offering Tests The Power Of Plastic” (via IBD)

Excerpts from Investor’s Business Daily [click here to read Nov. 20th IBD article]

• …”IPO Desktop’s Francis Gaskins warns not to expect MasterCard redux. Visa must go public by contract to its shareholders, partly to pay for litigation it’s involved in. That means that the yet-to-be-named price may reflect more desire for quick cash than for a good aftermarket.”
• “Like the rest of the credit-card industry, Visa has been in the middle of a legal controversy over interchange fees. Several countries are taking regulatory action, and some 50 class-action lawsuits are in the works over the issue. The battle is leeching money from Visa, and could result in damages.”
• “Only four banks account for 23% of Visa’s revenue, with JPMorgan providing 10% by itself. A disruption in any of these relationships would hurt the company.”
• “It will reserve an unspecified amount of this for litigation, some for redeeming preferred stock and the rest for general corporate purposes.”

[Source, via Investor’s Business Daily]

Returns After “Black Friday” Cause Losses For Retailers

The 40-billion dollar merchant interchange hidden tax is a mystery to many, and few understand how these fees work. 

A little known fact is that when shoppers return an item, the retailers can be out the interchange fee.  Depending upon the payment processing contract, reimbursments for the electronic charge payment do not always occur, even though a full refund to consumers are applied during returns.  Think of the billions of dollars in merchandise returns after “Black Friday,” traditionally the busiest shopping day of the year, following Thanksgiving.  Visa and MasterCard, along with its thousands of member banks’ motto should be “thanks for giving, but we might not refund your interchange charges for returned goods and services.”

[Source: WayTooHigh.com]

More Unfair Merchant Credit Card Fees

Today’s mystery: “Annual Compliance Service Fees”

If you have a Costco membership card, you know about the annual fee and understand how the wholesale clubs work.  It’s fair and everyone agrees to pay to belong.

However, did you also know that retailers are paying “service fees” for the privilege of processing electronic payments?  We were unfamiliar until a recent posting on our photo industry’s news group forum.  A retailer asked why First Data was charging an “annual compliance service fee” of between $50-100? 

Are other payment processors also charging extra creative fees?

We found this link for how one bank explained their extra merchant interchange “annual compliance service fee.”

We just talked with Chase Paymentech, and according to them, our ScanMyPhotos.com [30 Minute Photos Etc.] account has been paying an additional “service fee” each month since November, 2005.    When a customer asks us why we charged a certain price, we have an instant answer.  In the case of Chase Paymentech, their reply was that they  are “not exactly sure what the fee applied to.”

[Commentary: WayTooHigh.com]

Merchant Interchange Distraction (WayTooHigh.com)

We couldn’t help but notice today’s news that Citigroup is again facing [$15] billions is write-offs from its mortgage losses. 

Along with other major banks, you would think that when they gathered together to illegally fix merchant interchange rates, they would have also discussed why the other house of cards was poised to crash. The major banks are accused by us and others of violating antitrust laws by fixing prices. 

The same banks that were represented on the Visa and MasterCard boards, are also the ones facing billions in losses from the subprime mess. Where was the leadership?  With all the top-level terminations, it is clear there was huge mismanagement. 

Were they too focused on violating the Sherman Antitrust Act to recognize that the phony mortgage business would have to crash too?  While studying how they schemed to create billions each year in the name of interchange fees, they should have, instead been questioning what would happen to the “homeowners” when their no-interest mortgages’ lapsed.  It turns out that people were renting homes, as they had no equity invested.  Although all the media attention is on the banks’ mortgage mess, our litigation has the potential to be even greater and more overwhelming.

[commentary: WayTooHigh.com]

Supporting Hollywood Writers and Broadway Stagehands

Click Here For BusinessWire Release.

During the Writers Guild of America and Theatrical Stage Employees’ Walkout, Watch Your Own Pictures: Says ScanMyPhotos.com

Free Photo Scanning for all WGA and IATSE Members

IRVINE, Calif., Nov 16, 2007 (BUSINESS WIRE) — “Hollywood and Broadway might be dark, but people can still be entertained,” advised photo industry entrepreneur, Mitch Goldstone.

“People should revisit their own, long overlooked shoeboxes of snapshots, have it digitally preserved and be entertained while they share and watch their own pictures during the Thanksgiving holiday weekend and beyond,” said Goldstone, ScanMyPhotos.com president and CEO.

Support for the Writers and Stagehands

The entertainment industry strikes have impacted many, but none more than those walking the picket lines. The shutdown is causing widespread hardship. To help show support from the business community, ScanMyPhotos.com has been providing 250 free photo scans to all members of the Writers Guild of America (WGA) and International Alliance of Theatrical Stage Employees (IATSE). But, not to the corporate chieftains and industry tycoons who reap much of the revenues gained by those behind-the-scenes workers.

To take advantage of the 250 free photo scans, members of the WGA and IATSE are visiting ScanMyPhotos.com. The ordering information includes a link for accredited members to have 250 photographs digitally scanned and mailed back without charge.

Today’s digital world has triggered a revolution of change in the entertainment industry and beyond. From the film and television writers’ walkout in Hollywood, to the dark marquees on Broadway, technology is creating havoc, but also opportunities. For the photo imaging industry, consumers can now have generations of photo snapshots digitally preserved in minutes at a cost much less than even the balcony seats at an off-Broadway play.

ScanMyPhotos.com helps people watch their own generations of family photographs with its super-fast ecommerce photo scanning and retail digital imaging business. They scan 1,000 pictures in ten-minutes for just $49.95, and have prepaid fill-the-box service – the carefree way to have more than 1,600+ 4×6″ snapshots scanned and mailed back the same day for just $99.95.

ScanMyPhotos.com and its parent company, 30 Minute Photos Etc., are longtime advocates for supporting important causes. After “9/11,” the company brought 5,000 people to the Big Apple to support commerce and the city’s recovery (EPICCUSA.com). More recently, they are known as the first lead plaintiff in the merchant interchange antitrust battle against Visa, MasterCard and leading member banks, including Bank of America, JPMorgan Chase, Citigroup, Wachovia and others. A daily website with news and commentary updates on the antitrust litigation is co-edited by 30 Minute Photos Etc. cofounders, Carl Berman and Mitch Goldstone. (WayTooHigh.com).

ScanMyPhotos.com has a treasured history of trust. As well-known photo imaging industry leaders, Berman and Goldstone operate a nationwide ecommerce and retail photo center.

European Interchange Reform Delayed (via Reuters)

According to Reuters, the expected EU proposals for interchange fees has been delayed. It was to be released any day, but will now occur within the next few weeks, or perhaps not until next year. We hope this was not caused by Visa’s planned IPO. Could you imagine if the offering took place prior to this important ruling – investors would be denied the opportunity to fully understand its impact.  From our U.S. prospective, can you imagine the anguish from European merchants and consumers who are forced to pay upwards of 1.0% in merchant fees?  Then again, the rates in the U.S. are 70% higher than that, which raises the reoccurring question of why have the member banks and card associations been able to (as we assert) illegally fix prices and artificially charge such sky-high rates? 

[Commentary: WayTooHigh.com, via Reuters report]

Interesting Question: Why Only Cap Interchange Fees At The Pumps?

[With gas prices now at record levels, we are reposting this August 27, 2007 commentary] 

We received a call today from a news reporter from a national publication and was explaining the previously discussed $50.00 interchange fee cap at the pumps that MasterCard® had proposed some time ago. The reporter asked us why the level of $50.00 was limited just to service stations and not to all merchants? Good question, especially because by advocating the fee limit, the card association is, in our opinion, effectively explaining that even with credit card transactions, there is no reason to extend the interchange fee beyond that rate.

According to a P-I News Service article, this time last year, MasterCard’s logic about limiting interchange fees at service stations must be applied to all merchants. Whether it is Tiffany & Co, Cartier, or the local corner grocery store, the interchange fee should be limited to $50.00; we suggest it should be cost-based, and therefore closer to zero – just as it is in Canada when consumers use their PIN-based debit cards.

The article explained that “MasterCard Worldwide said … that it will establish a cap on the fees gas stations pay to clear consumer credit cards … ‘We have heard the merchant concerns loud and clear,’ Joshua Peirez, group executive of MasterCard’s global public policy, said in the statement. [On the retail gas cap], Peirez said it would apply to consumer credit and debit cards and will provide benefits to gasoline retailers on credit card transactions of about $50.00 or more … MasterCard added that the ‘unique structure’ of the petroleum distribution business means that gasoline retailers have been ‘disproportionately affected’ by rapidly rising oil prices.”

Click here to read the entire unedited article.

Another profile on this issue was covered by Digital Transactions: “MasterCard Will Post Interchange Rates, Cap Fees for Gas Retailers.”

Notice that only MasterCard had come up with the $50.00 cap at the pumps, and we are unsure why Visa® has been silent on this matter? Perhaps because merchants will do the math and demand that all transactions for Visa too – from watches to a bag of groceries – should also have the same $50.00 limitation – until we win the antitrust, price-fixing battle.

[commentary: WayTooHigh.com]

“Retailers Call on EC to Stop Card Price-Fixing” (ePayNews.com)

Excerpt:

Top executives at 14 major European retailers are asking the European Commission (EC) to lower what they call excessive interchange fees charged by payment card companies. Card companies earn €13 billion euro (US$19.08 billion) in annual revenues from card transaction fees, which the retailers say is excessive.

 The letter appears to be timed to coincide with the final stages of the EC’s enquiry into the charges currently levied by MasterCard on cross-border transactions within the European Union. A decision by the EC is expected in mid- to late November 2007

Click here to read more.

(Source: ePayNews.com)

30 Minute Photos Etc. (ScanMyPhotos.com) in the News

Click here to view.

“Visa’s Pending IPO”

Highlights from Digital Transaction Nov 10th article – click here.

1. “Under the planned IPO, which could happen as soon as 120 days after the global reorganization Visa completed Oct. 3, Visa would sell an approximately 51% interest in the company to the public through so-called Class A shares. The rest of the shares—Class B held by Visa USA members and Class C held by other financial-institution members internationally—have no voting rights.
2. The filing says Visa will use the IPO’s net proceeds for …, and for a deposit into an escrow fund to cover settlements or judgments from litigation.
3. … Visa still faces a host of suits and regulatory challenges involving everything from interchange to antitrust to currency- conversion fees.
4. Despite MasterCard’s encouraging experience, Visa’s success on Wall Street is by no means guaranteed. Shares of Discover Financial Services LLC have fallen 37% since Morgan Stanley spun off its card subsidiary in late June.

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

Understanding the Word "Insolvency" Is Crystal Clear (WayTooHigh.com)

If our merchant antitrust litigation is successful, and the facts are on our side, Visa® and Mastercard® could face insolvency. These aren’t our words, but those warning statements published in both card associations’ offering documents.

However, the news of what could be the second largest IPO in U.S. history is garnering little attention. Other than a few wire service updates, so far the news has been deafeningly silent. The big news is that with the American Express® settlement solved, according to the news stories, it’s clear sailing for Visa’s IPO.

Not!

We think, just like with MasterCard, the thousands of banks which own Visa will try to cash out as fast as possible. So fast, that it might even topple and overturn the offering.

Last time, the member banks were not in the fiscal calamity that they face today. When MasterCard went public, the member banks were not realizing billions in mismanaged losses. Today, they are in much greater need of enhancing their capitalization; what better way than to pass off their ownership in Visa? Their earlier rush to sell off part of their MasterCard investment , and its overshadowing price-fixing litigation, turned into one more multi billion dollar fiasco – the price they set was $39.00 a share. Oops – with MasterCard nearing $200.00, it seems that nothing they do is right. Are they so distracted by our lawsuit that they have lost their focus and spirit?

Whether it was buying up the subprime housing mortgages and loosing billions, to their other poor decisions that even forced CEOs to flee, they just cannot get it right. This time, they might get extra greedy at the exit and seek an offering price that will melt even the appetites of the most drunk-on-risk thrill-seeking investors’.

Reporters are not writing about the warnings of insolvency, nor are they explaining that our litigation is a much larger threat than even their pay off to AmEx.

[Commentary: WayTooHigh.com]

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

Visa’s Inc’s® $10,000,000,000 Misguided Hedge From Litigation (WayTooHigh.com)

Visa Inc’s® hope to raise $10 billion, in what would be the second largest U.S. IPO, and could then transfer partial ownership to outside shareholders. This seems to mirror MasterCard’s® strategy to limit the member bank’s antitrust liabilities. But, not so fast. Our litigation doesn’t start on the day of the IPO, but, instead goes back years. Similar to how if someone breaks the law then, after the fact turns good, they still violated the law.

The credit card network in its filing said that from the proceeds they hope to raise, they plan to deposit a portion of it into an escrow account to pay settlements or judgments related to litigation.

Visa Hopes to Raise $10B in IPO

[Source: via AP, Commentary: WayTooHigh.com]

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WayTooHigh.com Prepares To Change Format

Editors note: If you are eager to help the cause and have experience with Blogger and WordPress, please let us know. We are preparing to transfer this site to a more modern, high tech service because our first postings took place way back when Blooger was just beginning – so much has changed.Email us with your portfolio of other blog experience and a link to your existing WordPress site.Thanks for your interest.

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NEW YORK (AP) _ Analysts said Thursday that MasterCard Inc. is next in line to settle with American Express Co., which is seeking legal damages for being blocked out of the U.S. bank-issued credit card business.

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

"$5.00 Gas Now In California – Think of the Windfall Profiteering From Credit Card Interchange Fees at the Pumps (via KSBW-TV)

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

AP:Analysts Say MasterCard Inc. is Next to Settle with American Express Co (via AP)

Click here to read the AP story. Which included a mention by “Bear Stearns analyst David Hochstim [who] said Mastercard® may not feel pressured to resolve the litigation quickly. Visa, he said, was concerned about resolving the issue before its upcoming initial public offering.”

This news is most significant, as the AmEx® suit is tiny in relation to the much larger and more widespread merchant antitrust litigation, which has the potential not just to distract from the VISA IPO, but cause the company to face insolvency.

[Commentary, WayTooHigh.com, via AP news story]

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

Associated Press Goofs on Visa® / Amex® Settlement Story (WayTooHigh.com)

Wow, did the Associated Press goof. They must have had all the lead financial reporters covering the market plunge on Wednesday and had a second-string reporter copy press releases rather than research what is a huge admission by Visa®. You would think that $2,250,000,000 was enough money to get the story right?

According to AP, “The truce announced Wednesday rids Visa of a potential albatross before the San Francisco-based company’s initial public offering of stock.” The reality is the AmEx® settlement is puny when compared to the more than $100,000,000,000 mega-billion dollar violations that Visa, MasterCard® and their member banks could owe in our class-action merchant interchange litigation. With more than eight-hundred WayTooHigh.com news and commentary postings – spanning more than 2 1/2 years – and with a great deal of attention drawn towards our litigation, Visa and its sister payment network, MasterCard, are not in the clear, by any means.

Extracted from the preceding SEC IPO filing, in MasterCard Inc’s own words:

1) “… We have not established reserves for any of the significant legal proceedings in which we are currently involved.”

2) “If we are found liable in any of these lawsuits, we may, among other things, be forced to pay damages and/or change our business practices and pricing structure, which could have a material adverse effect on our revenue and profitability, or, in certain circumstances, even cause us to become insolvent, and result in a significant reduction in the value, or the complete loss, of your investment …”

3) “If we are less successful than Visa in defending interchange fees, we could also be competitively disadvantaged against Visa.”

4) “If we are ultimately unsuccessful in our defense of interchange fees, such regulation may have a material adverse impact on our revenue, our prospects for future growth, and our overall business.”

Largest Planned IPO Since Google has No Safety Net (WayTooHigh.com)

If you read into the AP story, it appears that Visa’s IPO will now face calm waters. Hardly. Just look at their SEC filing and very clear risk factors that if [when] we are successful and prove our case that they illegally used their market power to conspire to fix prices, along with the triple damages, they could face “insolvency.” The same is true for MasterCard as well. Can’t get any clearer than that!

“Besides raising financial uncertainties, the case threatened to raise embarrassing questions about Visa’s past business practices with a September trial date looming,” said AP. Embarrassing?, just read the prior eight-hundred and one WayTooHigh.com postings! Overlooking our weak grasp of English and liberal rules of grammar, and you see something much more ominous.

Although Visa today did not acknowledge any wrongdoing, a first-grader would know that something must have happened as they prepare to hand out $2,250,000,000. Could you imagine if they DID do something wrong?!

According to the AP story, “American Express’ three-year-old lawsuit painted an unflattering portrait of Visa, alleging the network operator conspired with some of its largest card issuers to thwart American Express’ growth.” So far, MasterCard’s head remains in the sand. Everyone at the card association seems blind to the reality of our case, especially Sharon Gamsin, their PR and communications hack, who according to the same wire story said “MasterCard remains confident about its defense against the allegations.” Sure. Since the same financial institutions which own and control Visa and gave the green light to settle, were also on the MasterCard and Visa boards for many years, what’s the difference?

Getting back to that first-grader, even they would have to conclusively understand that MasterCard is next to recognize that the game is up.

“Before IPO, Visa Reaches a $2.25 Billion AmEx Antitrust Settlement” (Digital Transactions)

[commentary: WayTooHigh.com, via AP news story]

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"AMERICAN EXPRESS REACHES $2.25 BILLION SETTLEMENT AGREEMENT WITH VISA" (via, company press release)

Interesting that MasterCard put $650,000,000 in reserves from its IPO to cover litigation expenses, yet, it was Visa who agree to settle first. From the below American Express press release, they explain that: “[a]s the sole remaining defendant, MasterCard would be liable for the full amount.”

—————————
Reprinted AmEx Release in it’s entirety.

AMERICAN EXPRESS REACHES $2.25 BILLION SETTLEMENT AGREEMENT WITH VISA
NEW YORK, November 7, 2007 —

American Express said today that it has reached an agreement to drop Visa as a defendant in a lawsuit alleging that MasterCard, Visa and their member banks had illegally blocked American Express from the bank-issued card business in the United States.

Under terms of the settlement agreement, Visa will pay a maximum amount of $2.25 billion to American Express. Individual banks named in the lawsuit will also be dropped as defendants. These include: J.P. Morgan Chase, Capital One, U.S. Bancorp, Wells Fargo and Providian. The agreement is subject to the approval of Visa’s member banks.

MasterCard remains the sole defendant in the American Express case. The lawsuit, which was filed in Federal court (November 2004) by American Express, seeks monetary damages for the lost business opportunity that resulted from the illegal conspiracy to boycott American Express. American Express is expected to seek damages in the billions of dollars. As the sole remaining defendant, MasterCard would be liable for the full amount.

“The size of this settlement, along with earlier court rulings, underscores the seriousness of the damage done by the illegal boycott,” said Kenneth I. Chenault, chairman and chief executive. “We plan to move forward with the litigation to hold MasterCard accountable for the illegal actions that blocked banks from working with us for many years and to seek full compensation for the value that would have been generated for our shareholders.”

Under terms of the agreement reached with Visa, Inc., Visa USA, and Visa International, American Express will receive an aggregate maximum payment of $2.25 billion. An initial
payment of $1.13 billion will likely be recognized by American Express in income during the fourth quarter 2007. The remainder, payable in installments of up to $70 million per quarter over the next four years, is subject to achieving certain quarterly performance criteria within the U.S. network services business of American Express.

“Given the strong growth momentum we have built within that business, we are highly optimistic in our ability to meet those performance requirements,” said Mr. Chenault.
In light of the settlement, American Express said that it is likely to incur a number of significant additional fourth quarter expenses, including:

Incremental investments in marketing, promotion, rewards, cardmember services and other business building initiatives designed to capitalize on competitive opportunities in the payments industry at a time when some competitors are pulling back.

Additional funding for the American Express Foundation, which will support the company’s ongoing philanthropic activities.

Litigation expenses related to the lawsuit against Visa and MasterCard.

Given the continued evolution of its rewards programs, the Company also said that it is currently evaluating enhancements to its method of estimating its liability for Membership Rewards®, including the consideration of an actuarial based approach for estimating the ultimate redemption rate. These enhancements could result in a significant one time addition to reserves upon implementation.

“Rewards and customer loyalty programs have been a key element of our success, and we expect them to continue to be a centerpiece of our strategy going forward,” said Mr. Chenault. “The overall economics of a rewards-based strategy are very favorable: higher spending, stronger loyalty and superior credit metrics. Our expectation is that more Cardmembers will enroll in rewards programs and generate a growing share of their overall spending with American Express. Our higher enrollments and improvements to the program in recent years are causing us to continually evaluate and enhance the method to estimate the ultimate usage of points earned by our Cardmembers.”

The aggregate cost associated with this potential addition to the Company’s Membership Rewards liability and the other items mentioned above could represent a significant portion of the payment expected to be realized this quarter.

The Company said that any decisions about whether to reinvest future payments into business building activities will be made on a quarter by quarter basis over the next four years. “This settlement compensates us in part for past damages in a way that allows us to invest in our future,” said Mr. Chenault. “We intend to be consistent with our approach of the last several years, capitalizing on marketing and promotional opportunities and enhancing our network when we see chance to gain a competitive advantage. We have been generating very attractive returns on our investment spending of the past few years and believe that the pipeline of market opportunities will continue to be strong in the years ahead.

American Express Reaches $2.25 Billion Settlement Agreement With Visa
“At a time when weakness in parts the economy is affecting many financial services companies, the settlement will give us greater flexibility and confidence to meet our financial goals while continuing to fund business building initiatives and support future acquisitions.”

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"Visa and Member Banks To Pay American Express $2.25 billion (via Reuters)

According to Reuters, CNBC is reporting that Visa® will pay rival American Express® $2.25 billion to settle a separate antitrust suit.

[Click here to view the American Express press release, via American Banker]

From our prospective, this is encouraging for our class-action and important news as the world’s largest credit card company prepares for a multi-billion dollar IPO early in 2008. [Then again, pending current stock market conditions, who knows when the right market timing will be?]

The case was initiated a year before our complaint filing, in 2004 by American Express which charged the two leading card associations and some of its member banks of preventing thousands of banks from using the American Express cards through anti-competitive practices. As with our class-action, the two credit card associations were accused of being co-owned by the very same banks. The acquirers and issuers are the same – the leading difference between the giant 80% Visa and MasterCard® market power is the spelling of their names. Yes, the card associations explain they are in head-to-head competition, but what they don’t explain is they are on the same team. Think of two pro football players on the same team; yes, they are different, but they have the same ownership, controls and game plan.

American Express claimed that Visa and MasterCard both violated antitrust law by barring banks from issuing credit cards for rival networks. Just as with our litigation, Visa faced triple damages.

We are very encouraged by this news and expect that MasterCard will quickly come to the same conclusion as Visa. As this litigation faces settlement, the associations and banks legal teams will have more time to read WayTooHigh.com and its message that interchange fees are too high, unjustified and in violation of antitrust laws.

[Commentary: WayTooHigh.com , via Reuters]

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

"Antitrust Claims Against Credit Card Companies and Major U.S Banks" [MSN Groups: USBanks Complaints]

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"Credit Card Fun Page" (Nov. NACS Magazine)

Click here to view the Credit Card Fun Page featured in the November issue of NACS Magazine.

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

JPMorgan Chase Giving Away Coal, No Kidding (WayTooHigh.com)

We must have deflected too much attention from the lawyers representing the named defendant, JPMorgan Chase® in our antitrust price-fixing litigation for them to have missed this one. The bank, which owns the world’s largest merchant payment acquirer (CHASE Paymentech®), issued a press release on Nov 1 that is offering some of its cardholder customers to qualify for a chance to win a lump of coal. With commodity prices soaring, we wonder how much a lump of coal is going for these days? What might have been intended as a joke, to us, seems more like an invitation for PIN purchases to brush off a space on their mantel for showing off that price.

More info, click here

[Commentary, WayTooHigh.com]

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"JPMorgan Chase Calls It: ‘A Lump of Coal’ – We Call It: More Bait &-Switch Banking Gimmicks (WayTooHigh.com)

More tricks by the card associations and its member banks. As we near the holiday retail selling season, our business, along with millions of other retailers are again being faced with more gimmicks and schemes to force consumers to use their debit cards as credit cards. Even though the funds are instantly withdrawn from their bank accounts, the interchange fees are much, much higher, and that is how the “contest” games. Through contests and bait-and-switch-like small-print rules, cardholders can only enter the fun if they do not use the less expensive PIN-based debit card electronic payment.

We received the below letter today. But, first, as a refresher on how these games are played, see the below links to prior WayTooHigh.com postings. Even JPMorgan Chase® has a sense of humor as it sticks its tongue in the face of all its merchant customers. In the bank’s own words from their Nov 1st press release: “(For this promotion, PIN purchases qualify only for a lump of coal).”

Look at What Visa® is Up to Now (WayTooHigh.com)

Confusing Debit Cards (WayTooHigh.com)

Who Is The Real Violator? (WayTooHigh.com)

WayTooHigh.com Reader Comment

Dear Mitch Goldstone:

JPMorgan Chase (one of the named defendants in your antitrust litigation, and the biggest bank in my area with a 17% market share) has came up with a sneaky new way to switch people over from cheaper PIN debit transactions to more expensive signature transactions this holiday season, forcing merchants to pay higher fees in the process (just when they need it the least).

The promotion, named “Chase Picks Up The Tab” (which runs until December 31) goes like this: Every 500th Chase Visa Check Card purchase from all enrolled Chase checking customers who reside within the promotional area is paid for by Chase (up to $500, and if the purchase is less than $5, the payoff is $5)… Chase will be giving out an estimated 50,000 purchases. But PIN-based purchases are not eligible among the “qualifying purchases”.

Way to go, Chase! You just made merchants furious!

And how will this be paid for? Interchange profits, of course… instead of merchants paying 25-50 cents for PIN debit, they’ll have to pay that 1.8+% signature debit fee, so this should be called “Merchants Pick Up The Tab (In Higher Interchange Fees)”. And customers will want to sign because of this promotion… so what will be the bottom-line hit to merchants in areas with large amounts of Chase checking customers, and what will be the payoff to Chase (and Visa Inc.)? You can bet on one thing: It won’t be pocket change for either.

P.S.: Don’t forget that JPMorgan Chase also owns over half of one of the three largest Visa/MasterCard processors (Chase Paymentech), so the payoff to JPMorgan Chase could be even bigger at some merchants. Any wonder why JPMorgan Chase is doing better than Citigroup or Wells Fargo?

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

"Arch Critic Calls for Citigroup to be Broken Up" (Telegraph.co.uk)

“The analyst who triggered the departure of Citigroup chairman and chief executive Charles “Chuck” Prince has called on his successors to break up the banking conglomerate” – Read more.

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

"Markets Fear Banks Have $1 Trillion in Toxic Debt" (The Independent)

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The Banks Misguided Fee Adventure (WayTooHigh.com)

Citigroup Inc.®* deflected its attention from prudent financial management and instead became greedy.

This Reuter’s picture of CitiGroup’s leaving Charles Prince is “price-less.”

Anatomy of Greed

Look back at the bank sponsored bankruptcy reform law of 2005; it made clearing consumer debt much harder. Fewer people were able to file for Chapter 7 protection, which was aimed to add further stability and protections for the financial institutions. Or, was it just a another sweetheart deal from Washington to its hefty campaign contributors and lobbyists? It helped the credit card industry and handed them billions of dollars while debtors had to pay back these “loans.” The “Bankruptcy Abuse Prevention and Consumer Protection Act” was little more than a payoff to the banks. Read more.

While the credit card associations and its member banks were cheering, they lost sight of a much bigger storm – sub prime loans that enabled people earning just $40,000 annually to “buy” $800,000 homes and others to with few assets to flip homes. They became little more than renters who were teased with low or no upfront down payments and no income verification requirements.

Once the intoxicating, phony interest-only mortgages turned into a devilish nightmare, the banks lost billions. It just cost Charles Prince, Citigroup’s CEO his job. But, it already ruined millions of dreams and destroyed lives, except for the few with titanium “golden parachutes.” Click here for Reuter’s update.

Reuters is reporting that “Citigroup may write off $11 billion of sub prime mortgage losses, on top of a $6.5 billion write-down last quarter.” Even MasterCard, had set aside $650,000,000 to help cover its legal liabilities.

Where is the leadership? Where is the ethics? Rather than covering these huge losses, the inexpensive solution was to not to be greedy in the first place.

The new must-read manual for the banking executives are a new edition topic of: The Idiots Guide To Common Sense, and especially The Idiots Guide To Understanding the Sherman Antitrust Act.

Barron’s has a feature profile (Nov 4) on MasterCard® that explains more, including what it asserts is the card association’s “low balling earnings indications.”

Today, the thousands of banks, which control[ed] MasterCard and own Visa® were thought to have more greed than even the oil companies. The “Bankruptcy Abuse Protection” scheme was wrought with one-sided greed. Now, the mortgage collapse faces similar greed. Both cost billions to address and the newest round, the ongoing misguided fee adventure with anti-competitive merchant interchange rates can become the banks’ newest way to squander billions more.

Interchange fees are no longer cost-based – only about 13% of interchange fee costs are used to cover its transaction costs. Along with Visa and MasterCard, the banks too are being accused by us and members of the class action of market power to illegally fix prices. With all their other leaking dikes, a new round of billion-dollar floods is unpreventable and they could again turn to wield their unbridled greed by raiding their interchange cash cow, raising rates and causing more hardship.

The banks rich piggy bank are interchange fees – a $40 billion annual hidden tax on the economy. They schemed in their misadventure to dump their legal liabilities by selling off part of MasterCard on the public. Now a much larger IPO is on the horizon to do the same with Visa. Washington and our economy should take notice. Like with MasterCard, Visa is warning that they too could face insolvency if our litigation is successful.

With the loss of leadership jobs at Merill Lynch and Citigroup and many newly homeless customers in defaults and billions in existing fiscal mismanagement, we urge our readers to prepare for the next economic bail out. This time, it is not about mismanagement, but monumental greed. The new looming concern are those corporate chieftains who are looking more Al Capone-like as a modern day “untouchable” symbol of the collapse of law and order. But, don’t look for the banks to be robbing themselves to cover their misadventures; interchange fees are their hedge that we must all be very worried about.

*[Citi is is a named defendant in our merchant antitrust litigation]

Background Links

“Visa’s IPO Use of Proceeds Plan and Interchange Overview (commentary, WayTooHigh.com)

Consolidated Amendment to Class Action Complaint (WayTooHigh.com)

Letter to Judge John Gleeson, Re Challenge to MasterCard’s Stock Reclassification (WayTooHigh.com)

[commentary: WayTooHigh.com]

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This site features the most comprehensive international breaking news, daily updates and commentaries on the history of merchant interchange fees. The goal in representing millions of merchants and cardholders is to reform an antiquated, costly and unfair payment system and explain why the nearly $40 billion annual merchant interchange fee is a hidden tax on consumers and retailers.

WayTooHigh.com: The Credit Card Interchange Report, is co-edited by Carl Berman and Mitch Goldstone, founders of California-based 30 Minute Photos Etc., the national online boutique photo service, 30minphotos.com and its newest division, ScanMyPhotos.com. Berman and Goldstone are also the lead plaintiffs and class representatives in the multi-billion dollar antitrust class-action litigation against Visa, MasterCard and member banks. This informational web site was created to provide news and commentary updates only. None of the information posted on WayTooHigh.com is intended to constitute legal arguments; it reflects only the opinions of its co-editors and not of any other plaintiffs or other parties involved in the merchant antitrust litigation. The information is not guaranteed to be correct, complete, or current. We make no warranty, express or implied, about the accuracy or reliability of the information posted by WayTooHigh.com or at any other Web site to which this site is linked.

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

Visa and MasterCard’s Merchant Rules Are Irrelevant (WayTooHigh.com)

Last week, we posted a commentary on the fact that the American Red Cross was in violation of their payment processing agreements. They were “requiring” a minimum payment to accept donations from electronic payments. What did Visa® and MasterCard® do? Nothing, as far as we could see. This helps draw renewed attention, not to the invaluable contributions of the American Red Cross, but rather to the breakdown in oversights for the silly interchange fee rules.

Here’s another posting on the topic.

Credit Card Fees Force Red Cross to Impose Minimum Donation Amounts

[commentary – WayTooHigh.com]

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

Breaking News on Citigroup [one of the named defendants member banks]

Several news sources are reporting on the imminent ouster of Citigroup Inc.® chief executive Charles Prince.

The WSJ’s Robin Sidel is reporting [click here, subscription required] that “Charles Prince, the beleaguered chief executive of Citigroup Inc., is planning to resign at a board meeting on Sunday, according to people familiar with the situation…. Citigroup has lost more than a fifth of its market value since Oct. 12.”

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

"Why Credit Card Interchange … Probably Isn’t Going to Go Down" (The Merchant Account Blog)

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

This Holiday, Most Gifts Will Be Gift Cards, According to PayPal (via BW release)

According to the Oct 31, BusinessWire release, “the Nielsen survey [for PayPal] revealed that more shoppers are playing it safe this holiday season by buying gift cards, rather than purchasing tailored gifts for their loved ones. In fact, 64 percent of shoppers said they plan to give gift cards. But recipients don’t seem to mind. Fifty seven percent of respondents said they would actually prefer to receive money or a gift card in place of the traditional present.”

In 2006, just under 30% of all holiday shopping was online, this year, according to the PayPal release, it will be 40% which means that the card associations and member banks are poised to take even more money from interchange fees. Nearly all online orders require electronic payments. For our business, 100% of all ecommerce business requires electronic payments.

Why is this so important to our interchange battle?

When you use a credit card, where the acquiring and issuing financial institution are the same, effectively, they mirror gift cards. The gift card is being electronically transacted by the issuing business and … there are no interchange fees. Just like when you write a paper check, or use a PIN-based debit card in Canada, there are no interchange fees. So, the question is, how can Visa® and MasterCard’s® market power still force this $40 billion hidden tax on retailers and consumers?

The banks might counter and explain that gift cards prove there is a choice and that there really is competition. But, not so fast. How are most gift cards paid for? That’s right, plastic! And, Visa and MasterCard have nearly an 80% market share of the electronic payment network.

[Commentary, WayTooHigh.com, via survey data from the Oct 31 PayPal BW release]

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

OIL NEARS $100.00 A BARREL – GENERATES HUGE NEW INTERCHANGE FEE PROFITEERING

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates

Understanding Interchange Fees Requires a Master’s Degree in Finance at Disney (WayTooHigh.com)

Back when interchange fees were first created, it was cost-based to cover the electronic payment transactions. Today, this job posting shares one more example why interchange fees are out of control. The Walt Disney Company is seeking an executive with a master’s degree to analyze interchange costs.

Job description [GadBall Jobs]:

• This role on the WDP&R Credit Card Management team will be responsible for planning and forecasting credit card commission expense for the Walt Disney World Resort and the Disney Cruise Line and producing variance analysis for actuals versus plan, prior year and forecast. This role will analyze interchange expense to identify and evaluate the source of transaction downgrades and propose remedial action to mitigate the effects of transaction downgrades. This role will also be responsible for identifying industry trends and developing analyses to evaluate the effects of the trends on Segment operations. Additionally this role will be responsible for project management of planned initiatives and for creating executive presentations related to issues, projects, and opportunities.

[Source, commentary, WayTooHigh.com, via GadBall Jobs posting, see link]

Welcome to WayTooHigh.com – The Credit Card Interchange Report (c) 2005-2007. Daily news and commentary updates