Good Thing MasterCard Worldwide Has An “Integrity Officer” On Staff

Reaction to the Dec 28 Wall Street Journal Letter to the Editor by MasterCard Worldwide’s Integrity Officer.

The EU has found, again, that interchange fees charged by MasterCard to merchants are fixed at anticompetitive levels.  These are the same findings that have been made by the Reserve Bank of Australia, the United Kingdom Office of Fair Trading, and every other investigation by a government enforcement agency.  In his demonstrably incorrect response, Joshua Peirez of MasterCard Worldwide [“EU Killing of Interchange Fees Won’t Help Customers” Letters to the Editor, Dec 28] minimally provides a twinkle of whimsy corporate-speak.  Instead of recognizing that the nearly $40 billion annual hidden tax on merchants and consumers is based on illegal price-fixing, he hauled out the usual replies.

The fact is that consumers, the market place and technology, not interchange fees are what forces innovations within the electronic payment network.  The actual cost to transact an electronic payment is a tiny fraction of the total fees collected, yet Mr. Peirez suggests that “interchange fees are necessary to fairly share the cost of an electronic payment system…”

Merchants are unable to pay a “fair price” for using MasterCard’s [and Visa’s] payment network; we are all forced to submit to their market power and their member banks’ ability to collectively fix interchange fees at noncompetitive levels.

MasterCard’s long history of anticomptitive price-fixing corrupts their understanding of economics 101, where the marketplace controls competition, not a board of directors who stand accused of illegal price-fixing.  Of course prices will be lowered once the nearly 2% forced interchange fees are removed.  In Australia, England and Canada, and in other countries where rates are much lower than in the U.S., the credit card networks are working fine.  [Canada has no interchange fees on PIN-based debit cards].  If it was not gargantuanly profitable, MasterCard and Visa would have pulled out of those markets, and they surely have not.

As for card benefits, study the endless grouping of fees that MasterCard and Visa charge.  For instance, when an affinity frequent-flyer signature card is used, merchants are also taken on a ride.  The interchange fees on those cards are even higher than other categories.

Interchange fees were established in the early 1970s in order to compensate card-issuing banks for the cost of issuing and maintaining credit card accounts. It was designed when merchants had to use bulky manual credit card imprinters and stacks of thick carbon copy receipts that were mailed away for processing.  The check processing system in the United States manages the clearing the billions of paper checks that speed along that system, all without any interchange fees. 

Over the years, the interchange fees charged by Visa and MasterCard have been a multi–billion dollar tool to generate revenues from non-cost based transactions.   While Visa and MasterCard have a history of scorched-earth litigation and are mounting a vigorous public relations battle against its core customers, merchants and cardholders, merchants and consumers continue to challenge their every move.   We understand that competition exists solely for card issuers in the form of ever increasing interchange fees.  The nearly $40 billion annual hidden tax on merchants and consumers is the result of a broken and we are immovable in our commitment to fixing this unjust burden

[Commentary: WayTooHigh.com, in response to The Wall Street Journal “EU Killing of Interchange Fees Won’t Help Customers” Letters to the Editor, Dec 28. See link].

Happy New Year!

Why Blogging Is More Like Writing a Check, Then Using a Credit Card

We just launched a new blog site [“Tales From The World of Photo Scanning’] for ScanMyPhotos.com, our nationwide super-fast photo scanning service.  The idea came after one of the nation’s more well known technology reporters paid us a four-hour visit on Saturday; we scanned more than 4,000 of his pictures. 

The new blogwas his idea, but it also led to us asking this question: why is blogging free, yet electronic payment transactions cost billions?  Both use a network to transmit data, but, blogging is more like writing a check, where there are no illegally-based anticompetitive fees.  Sure, it is not a four-party network, but just look at Google’s stock valuation to identify how profitable providing this free service is.  Technology is making everything faster, less costly and more efficient, with the exception of merchant interchange fees, of which, MasterCard recently announced yet another fee increase.  Way to go MasterCard!

[commentary: WayTooHigh.com]

“EU Killing of Interchange Fees Won’t Help Customers” (Letters, WSJ)

Click here to read WSJ Dec 29 Letters from MasterCard Worldwide – subscription required.

We Pause to Remember The Life of Benazir Bhutto

The nation of Pakistan and the world lost a champion for democracy today.  Along with millions of people around the globe, we too pause in memory of former Pakistan premier Benazir Bhutto.

JUST IN: MasterCard FEE Increase In January

MasterCard’s Happy New Year Gift to Merchants and Consumers

A letter dated Dec 10 from Chase Paymentech was just received (Dec 27) at our company.

The topic: “MasterCard Fees to be implemented beginning January 18, 2008”

MasterCard is actually going to double one of their interchange fees in 2008!

Although the letter is challenging to understand, the result is that MasterCard is again preparing to raise some interchange fees.  This time the two categories of fee increases will affect the Acquirer Program Support Fee for MasterCard International’s non-U.S. transactions.

The Interchange rates for International Consumer transactions will change from a variable rate (.21% to .41%) to a fixed rate of .45%. This is a huge increase!

The Cross Border Transaction Assessment will increase from .20% to .40%.  According to the letter, the Cross Border Transaction Assessment is separate from and in addition to the Acquirer Program Support Fee.

There were no announced changes for transactions in the U.S. for domestic cardholders.

[Source: WayTooHigh.com, via Chase Paymentech Dec 10 letter]

More Windfall Profiteering At The Pumps

Today’s Los Angeles Times asks readers if they are ready to pay $4.00 a gallon?  The article by Times staff writer Ronald White hints that “several factors point toward a nightmarish spring for motorists.”  But, there is a bright side too. These are dreamy conditions for Visa, MasterCard and its member banks which continue to reap windfall profits as more motorists are forced to charge at the pumps. 

We continue to rhetorically wonder why the credit card associations are able to grab a percent of each sale, even though the cost per transaction are about the same for a $1.00 or $1000.00 electronic payment on their networks.

Recent WayTooHigh.com related articles:

• More Oil Profiterring. A Barrel of Gas Now at $86 (WayTooHigh.com)
• Oil Jumps to Nearly $100, Generates More Interchange Fee Profiteering
• The Flood of Banks’ Windfall Profiteering at the Pumps Rises (commentary, WayTooHigh.com)
• That’s a Lot of Dough-Nuts (WayTooHigh.com)
• Oil Nearing New Record Highs Means Record Interchange Fees Too (WayTooHigh.com)
• “$105 a Barrel” Would Mean More Windfall Profits for Credit Card Companies (WayTooHigh.com)
• Oil Surges Past Record High, Above $78 a Barrel; Yields More Windfall Profiteering For Banks (WayTooHigh.com)
• An Orgy of Credit Card and Bank Profiteering From Record Pump Prices (WayTooHigh.com)
• Giant Credit Card Cartels Answering Wrong Questions (WayTooHigh.com)

[Commentary: WayTooHigh.com]

Visa’s International Merchant Discount Interchange Fee

In advance of the Visa Inc. worldwide Olympic sponsorship of the Beijing 2008 Olympic Games, we are curious of what the actual merchant discount interchange fee schedule is in China. 

Visa USA posts an online rate schedule, but, we cannot identify one for international rates.

In a nation with limited economic and technological infrastructure, as compared to the U.S., we cannot help but wonder what equally excessive interchange rates’ merchants and consumers are forced to pay on virtually every credit or debit card transaction in China.  If it is less than the rates charged in the U.S., how exactly can Visa Inc. justify charging more in the U.S. than in China?  Many other industrialized nations pay a third of the rates in the U.S., so it might just be that rates in China are also lower, but why?

During the Games, Visa will be a worldwide partner to help support the Olympics, but how exactly will they be protecting consumers and retailers who are forced to pay these hidden fees?  The Olympics will be another focal point of interest in our multi-year quest to eliminate the international greed by Visa, MasterCard and its member banks.

Let the games begin!

On a personal note: The founders of 30 Minute Photos Etc., which are lead plaintiffs in the merchant interchange litigation, are staunch supporters of the Olympics, regularly attend many of the Games, anticipate attending the Games in China and are longtime advocates of recognizing the invaluable contributions of the Olympic sponsorship partners; without them, there would be no Olympics.  However, Visa’s role in our assertion that they have engaged in and violated antitrust laws and have been involved with illegally fixing interchange rates cannot be overlooked.  The scope of the Olympics will help identify the global reach of these supracompetitive fees.

[Commentary:WayTooHigh.com]

News Update on ScanMyPhotos.com [30 Minute Photos Etc.]

Click here to view. 

MasterCard is Again Wrong

We can’t help but remark on the disconnect that MasterCard and its PR machine has in reaction to the EU ruling last week  [see news item]. 

The second largest credit card association, which was controlled by the same banks that are facing unparalleled billions in losses from the subprime mortgage crisis, is again misguided.  The company suggests that interchange rates for consumers will not go down.  They should know, because of their exhaustive leadership in what we assert is anticompetitive price-fixing and a fundamental adversity to competition.

In the real world of retail stores and real customers, competition lowers prices.  As the credit card giant is forced to end or limit its merchant interchange fees, the result will be that retailers will adjust prices; that is the way competition works, it’s economics 101.

While their PR machine is global, today’s Internet technology provides a more balanced opportunity to instantly respond to their games.  And, that is what we are doing, with daily news and commentary updates.  

 [Commentary: WayTooHigh.com]

U.S. Should Follow European Ruling Ordering MasterCard To Withdraw Hidden Credit Card Fee: NRF Says

The National Retail Federation recenty welcomed a ruling by the European Commission that hidden fees currently charged by MasterCard to process credit card transactions in Europe – similar to those that cost U.S. shoppers $40B annually – drive up costs for consumers in violation of EC rules and must be withdrawn within six months.

“European authorities say MasterCard is double dipping in Europe, and that’s exactly what we think both MasterCard and Visa are doing here in the U.S.,” NRF Senior Vice President and General Counsel Mallory Duncan said. “Visa and MasterCard are charging billions of dollars directly to consumers for all the fees that show up on their monthly statements, then they turn around and charge billions more from the hidden credit card fees they force merchants to include in the price of merchandise.”

“These fees drive up the cost of merchandise for shoppers while delivering little if any benefit commensurate with the billions charged,” Duncan said. “It’s time for this to stop, and authorities here in the United States should take the European ruling as a signal that it’s time to bring the same relief to U.S. consumers.”

The European Commission ruled today that so-called “interchange” fees charged by MasterCard and its banks violate EC Treaty rules on restrictive business practices and “inflated the cost of card acceptance by retailers without leading to proven efficiencies.” The commission ordered MasterCard to withdraw the fees within six months or face fines equivalent to 3.5 percent of global revenues.

The commission said the fees are “not illegal as such” and stopped short of saying MasterCard could not charge any interchange fee at all. But any replacement system of fees, even if lower, would be allowed under EC rules only if MasterCard could show that it “contributes to technical and economic progress and benefits consumers.”

EC Competition Commissioner Neelie Kroes said the fees drive up costs for consumers as well as retailers.

“Consumers foot the bill as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices,” Kroes said in releasing the ruling. “The commission will accept these fees only where they are clearly fostering innovation to the benefit of all users.”

Averaging close to 2 percent in the United States, interchange is a fee Visa and MasterCard banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected more than $36B in interchange fees last year, up 17 percent from 2005 and 117 percent since 2001. This year, the amount is expected to top $40 B, or about $350 per household. Interchange is largely unknown to most consumers because Visa and MasterCard don’t disclose the fee on monthly statements and prohibit merchants from disclosing it on receipts.

MasterCard interchange rates for cross-border transactions in Europe currently range from 0.8 percent to 1.2 percent of each transaction. Visa was not addressed in today’s ruling but reached an agreement with the EC in 2002 that restricts its fees – previously averaging 1.1 percent – to a maximum of 0.7 percent. That agreement ends at the end of 2007, and the EC said today that beginning in 2008 Visa will be “responsible to ensure that its system is in full compliance with EU competition rules.”

NRF is leading retailers’ fight against soaring interchange costs in the United States, and Duncan testified before the House Judiciary Committee’s Antitrust Task Force in July that collusion between banks when setting the fees has violated U.S. antitrust law. The hearing was the second time Congress has looked at interchange practices in the past two years following a Senate Judiciary hearing on possible antitrust violations in July 2006. In addition, approximately 50 federal antitrust lawsuits against Visa, MasterCard and their member banks have been consolidated in U.S. District Court in New York and are awaiting action.

The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees – about one in five American workers – and 2006 sales of $4.7T. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. www.nrf.com

SOURCE: The National Retail Federation

Interchange Fees Must Be Important: Mentioned 145 Times

In the just published Visa Inc. 10-K SEC filing [click here], the term “interchange” was mentioned 145 times.  While Visa Inc. explains they “administer the collection and remittance of interchange fees.. [they] generally do not receive any portion of the interchange fees.”  However, while merchants and consumers are faced with this annual $40 billion hidden tax, Visa hints that it is not a big deal.  It is a $40 billion annual big deal.

[Commentary: WayTooHigh.com]

Visa Inc. Files 10-K Annual Report, Amends S-1 Registration

Click here to view report.

key point: “Failure to successfully defend or settle the interchange litigation would result in liability that to the extent not covered by our retrospective responsibility plan could have a material adverse effect on our results of operations, financial condition and cash flows, or, in certain circumstances, even cause us to become insolvent.”

Points of interest from the 10-K Report:

1. “Interchange represents a transfer of value between the financial institutions participating in an open-loop payments network such as ours. On purchase transactions, interchange fees are typically paid to issuers by acquirers in connection with transactions initiated with cards in our payments system. We set default interchange rates in the United States and other regions. In certain jurisdictions, interchange rates are subject to government regulation. Although we administer the collection and remittance of interchange fees through the settlement process, we generally do not receive any portion of the interchange fees. Interchange fees are often the largest component of the costs that acquirers charge merchants in connection with the acceptance of payment cards. We believe that interchange fees are an important driver of system volume.”

2. “As the volume of card-based payments has increased in recent years, interchange fees, including our default interchange rates, have become subject to increased regulatory scrutiny worldwide. We believe that regulators are increasingly adopting a similar approach to interchange fees, and, as a result, developments in any one jurisdiction may influence regulatory approaches in other jurisdictions. Interchange fees have been the topic of recent committee hearings in the U.S. House of Representatives and the U.S. Senate, as well as conferences held by a number of U.S. federal reserve banks. In addition, the U.S. House of Representatives has passed a bill that would commission a study by the Federal Trade Commission of the role of interchange fees in alleged price gouging at gas stations. Individual state legislatures in the United States are also reviewing interchange fees, and legislators in a number of states have proposed bills that purport to limit interchange fees or merchant discount rates or to prohibit their application to portions of a transaction. In addition, the Merchants Payments Coalition, a coalition of trade associations representing businesses that accept credit and debit cards, is mounting a challenge to interchange fees in the United States by seeking legislative and regulatory intervention.”

3. “Interchange fees and related practices also have been or are being reviewed by regulatory authorities and/or central banks in a number of jurisdictions, including the United States, European Union, Australia, Brazil, Colombia, Germany, Honduras, Hungary, Mexico, New Zealand, Norway, Poland, Portugal, Romania, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom. In certain countries, such as Australia and Mexico, interchange rates have been adjusted in anticipation of, or in response to, government regulation.”

4. “Risk Factors—Legal and Regulatory Risks—The payments industry is the subject of increasing global regulatory focus, which may result in costly new compliance burdens being imposed on us and our customers and lead to increased costs and decreased payments volume and revenues,” “—Interchange fees are subject to significant legal and regulatory scrutiny worldwide, which may have a material adverse impact on our revenues, our prospects for future growth and our overall business”

5. “A finding of liability in the interchange litigation may result in substantial damages.

   Since 2005, approximately 50 class action and individual complaints have been filed on behalf of merchants against Visa U.S.A., Visa International, MasterCard and other defendants, including certain Visa U.S.A. member financial institutions, which we refer to as the interchange litigation. Among other antitrust allegations, the plaintiffs allege that Visa U.S.A.’s and Visa International’s setting of default interchange rates violated federal and state antitrust laws. The lawsuits have been transferred to a multidistrict litigation in the U.S. District Court for the Eastern District of New York. The class action complaints have been consolidated into a single amended class action complaint and the individual complaints are also being consolidated in the same multidistrict litigation. A similar case, filed in 2004, is on appeal by plaintiffs after having been dismissed with prejudice, and has not been transferred to the multidistrict litigation.”

6. “The plaintiffs in the interchange litigation seek damages for alleged overcharges in merchant discount fees, as well as injunctive and other relief. The plaintiffs have not yet quantified the damages they seek, although several of the complaints allege that the plaintiffs expect that damages will range in the tens of billions of dollars. Because these lawsuits were brought under the U.S. federal antitrust laws, any actual damages will be trebled and Visa U.S.A. and/or Visa International may be subject to joint and several liability among the defendants if liability is established, which could significantly magnify the effect of any adverse judgment. The interchange litigation is part of the covered litigation, which our retrospective responsibility plan is intended to address; however, the retrospective responsibility plan may not adequately insulate us from the impact of settlements of, or judgments in, the interchange litigation. Failure to successfully defend or settle the interchange litigation would result in liability that to the extent not covered by our retrospective responsibility plan could have a material adverse effect on our results of operations, financial condition and cash flows, or, in certain circumstances, even cause us to become insolvent. In addition, even if our direct financial exposure were covered by our retrospective responsibility plan, settlements or judgments involving the multidistrict litigation could include restrictions on our ability to conduct business, which could increase our cost of doing business and limit our prospects for future growth

7. The retrospective responsibility plan depends, in part, on the timely completion of our proposed initial public offering, and if we are unable to close our proposed initial public offering in a timely manner, we may have insufficient funds to pay settlements of, or judgments in, such litigation, which could materially adversely affect our results of operations, cash flow and financial condition.”

8. “Multidistrict Litigation Proceedings (MDL)

   In fiscal 2005 and 2006, approximately fifty lawsuits—most of which were asserted as purported class actions—were filed on behalf of merchants who accept payment cards against Visa U.S.A., Visa International, MasterCard and other defendants. Plaintiffs allege that defendants violated federal and state antitrust laws by setting interchange rates (among other claims, as described below). The suits seek treble damages for alleged overcharges in merchant discount fees, as well as injunctive and other relief.

   On October 19, 2005, the Judicial Panel on Multidistrict Litigation issued an order establishing a MDL in the Eastern District of New York. The Honorable John H. Gleeson was assigned to coordinate pretrial proceedings in the cases transferred to the MDL. On April 24, 2006, a consolidated amended class action complaint was filed, which supersedes the class action complaints filed previously. One additional class action was filed after the date of the consolidated class complaint; it has been conditionally transferred to MDL 1720 but has not yet been made part of the consolidated class. Visa U.S.A. is a defendant in the consolidated class action complaint and nine additional complaints filed on behalf of individual plaintiffs. 

   The consolidated class action complaint alleges that the setting of interchange violates Section 1 of the Sherman Act; that Visa’s “no surcharge” rule and other alleged Visa rules violate Section 1 of the Sherman Act; and that the rules and interchange together constitute monopolization, violating Section 2 of the Sherman Act and California’s Cartwright Act. The consolidated class action complaint further asserts that Visa ties “Payment Guarantee Services” and “Network Processing Services” to “Payment Card System Services” and engages in exclusive dealing, both in violation of Section 1 of the Sherman Act and that offline debit interchange violates Section 1 of the Sherman Act and California’s Cartwright Act. The individual complaints include similar claims and also allege that Visa impermissibly ties services for “Premium Credit Cards” to services for other Visa-branded payment cards.  On June 9, 2006, Visa answered the consolidated class action complaint and moved to dismiss in part, or strike, claims for pre- January 1, 2004 damages. On July 10, 2007, pursuant to a joint request by the parties, the court entered an amended scheduling order extending the deadline for fact discovery to June 30, 2008, expert discovery to February 20, 2009 and the deadline for completion of all summary judgment and other pretrial motions to March 27, 2009. No trial date has been set. On September 7, 2007, the Magistrate Judge in MDL 1720 issued a Report and Recommendation to the District Court recommending that the District Court grant the defendants’ motion to dismiss the putative class plaintiffs’ claims for damages incurred prior to January 1, 2004. On October 12, 2007, the Magistrate Judge granted putative class plaintiffs’ request to brief the issue of whether the Report and Recommendation would affect the claims of non-party members of the putative class who opted out of the In re Visa Check/ MasterMoney Antitrust Litigation class action. Following the submissions, the Magistrate Judge declined plaintiffs’ request to advise on that issue. Putative class plaintiffs filed objections to the Report and Recommendation on November 14, 2007, and defendants filed their responses to those objections on December 13, 2007.”

9. “Interchange fees and related practices also have been or are being reviewed by regulatory authorities and/or central banks in a number of other jurisdictions, including the European Union, Australia, Brazil, Colombia, Germany, Honduras, Hungary, Mexico, New Zealand, Norway, Poland, Portugal, Romania, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom. For example:

    

   •

   The Reserve Bank of Australia has made regulations under legislation enacted to give it powers over payments systems. A regulation controls the costs that can be considered in setting interchange fees for Visa credit and debit cards, but does not regulate the merchant discount charged by any payment system, including competing closed-loop payments systems.

    

   •

   New Zealand’s competition regulator, the Commerce Commission, filed a civil claim alleging that, among other things, the fixing of default interchange rates by Cards NZ Limited, Visa International, MasterCard and certain Visa International member financial institutions contravenes the New Zealand Commerce Act. A group of New Zealand retailers filed a nearly identical claim against the same parties before the same tribunal. Both the Commerce Commission and the retailers seek declaratory, injunctive and monetary relief.

    

   •

   In March 2006, Banco de México, the central bank of Mexico, reached an agreement with the Mexican Banks Association to implement a new, value-based interchange methodology. As part of Banco de México’s transparency policies, details of the new interchange rates have been publicly disclosed and are available on Banco de México’s web site.

    

   •

   In December 2007, the European Commission adopted a decision that MasterCard’s multilateral interchange fees for cross-border payment transactions within the European Economic Area violated European Community Treaty rules on restrictive business practices and must be withdrawn within six months.”

[Source: Visa, Inc. 10-K SEC Filing]

Goldstone at CES, Update

Click here to view offical CES schedule

click here to view Businesswire press release

MasterCard’s Public Relations Machine is Priceless in its Message

MasterCard Europe’s public relations spin machine is gearing up to assail its core customer base – merchants.

In our photo imaging business, the last thing we would want to lash out at are picture-takers.  As our industry transitioned from film to digital, we didn’t fight the trend, but adjusted to what is today a nearly 100% Ecommerce and digital imaging retail business.  No more film and interchange fees are just as antiquated too.

From what we are reading, rather than adjusting to the realities of today’s marketplace – where technological efficiencies and in vogue business practices preclude illegal price-fixing – the credit card giants are, instead, sniping at its customers.

Then again, when you study the lack of management at many financial institutions, which are facing billions in antitrust liabilities and billions more in subprime mortgage failures, it is more crystallized than ever that leadership and academic sophistication have taken a back seat to unbridled greed – that’s what happens when you operate an illegal cartel.

According to The FINANCIAL [click here], MasterCard Europe is cautioning consumers that rates won’t drop. RIGHT THEY ARE!, if MasterCard and Visa have anything to do with it.  Just study the results of the earlier litigation. But, from a merchant’s prospective it will because that is how a fair market economy operates when there is competition and no price controls. Unlike with Visa and MasterCard, merchants have competition and must adjust their fees to not a cartel pricing structure, but to the marketplace. Either way, until our antitrust litigation is resolved, Visa and MasterCard will be free to continue their corkscrewing interchange fee scheme which generates $40 billion each year for the banks. Last time there was this type of resolve, Visa and MasterCard simply raised other rates to adjust for their penalties, thus more than paying for their fines.The EU decision is indeed a wondrous holiday gift for all consumers and merchants, but one that will not be fully enjoyed for many months. It is another rejection of the justifications offered by MasterCard and Visa for fixing of interchange fees paid by merchants.   The Australian RBA, the UK OFT, and the earlier EU decision on Visa all have rejected the networks’ excuses. This decision, and the others, will certainly get the attention of U.S. courts, regulators, and Congress. It has piqued interest by U.S. merchants. It is long past time for the networks to reduce or eliminate interchange fees in the U.S. and worldwide rather than face crippling liability in U.S. courts.  There are nearly 100 separate merchant interchange fees in the U.S. and the domestic rates are more than double the interchange fees in many European nations.

The card associations hint they maneuver in a free market, but their multi-million dollar ad campaigns training consumers not to use cash and insist that debit cards be processed at the much higher signature credit card rates are more about market dominance and market power, where prices are illegally fixed by agreement. Of course consumers and retailers will benefit from the removal and decline of a $40 billion annual hidden tax that few understand.When was the last time a $40 billion annual fee did not hurt consumers?

MasterCard is reporting that “interchange fees benefit consumers by fairly sharing the cost of an electronic payment system among the two key beneficiaries of that system – cardholders and merchants.”  This is wrong and we are suing Visa, MasterCard and its leading member banks over these illegal fees which are anticompetitive and we assert is in violation of the law.

Way back when the credit card network functioned with antiquated, analog manual imprinters (and provided mountains of carbon copy receipts which had to be mailed away for processing) the interchange fees were cost based and had some justification.  Today, the electronic network is so efficient and its costs are a fraction (about 13%) of the total fees charged.

Just look at your local Costco and follow the plunge in flat-screen TV prices. If there was a giant monopoly controlling those electronic items, you wouldn’t have seen the prices fall from $15,000 for a plasma TV to just a few hundred dollars today for a much more efficient and superior flat-screen model. This is the business model Visa and MasterCard should be watching.

As a well-known retailer and Ecommerce business owner, 30 Minute Photos Etc. is always eager to take on the credit card cartel and explain the real facts, as we have been doing for several years and with more than 875 previous WayTooHigh.com news and commentary updates. We don’t invest in controlled market studies, but rather interact with real customers and business owners every day.

In this case, MasterCard even has its holidays wrong. From their prospective, it is not Christmas, but April Fools Day which is upon us; they proclaim that “merchants receive enormous benefits.” They should be explaining more about the $40 billion in fees that are attached to this holiday gift.

According to The FINANCIAL, “Merchants say that MasterCard prohibits them from disclosing to customers how much they pay for accepting payment cards. They know this is untrue. Merchants are free to disclose merchant discount fees, interchange fees, or any other costs they incur. But they choose not to disclose these costs to consumers just as they choose not to disclose any other cost of doing business, or how much they “mark up” their merchandise.”

At best, they are playing verbal shell games a la “Visa and MasterCard don’t collect interchange.” True as a factual statement, but inaccurate.  We merchants don’t directly pay Visa and MasterCard the interchange fees, but to a third-party. In or case, it is Chase Paymentech, which is owned by JPMorgan Chase, a named defendant in our merchant interchange litigation and most recently co-owner of both Visa and MasterCard [small word!]. Visa and MasterCard make it impossible for merchants to disclose the exact interchange fees for each transaction. 

1) In their operating rules (not in the merchant rules on the website but the hidden rules) they set certain fields that can be on credit card receipts and they do not allow a field for interchange (or merchant discounts or other costs), so we cannot put it on the receipt and comply with the rules;

2) Given both the complexity of the interchange fee schedules (MasterCard’s is 100 pages) and the lack of comprehensible identifiers on individual cards (either physical or electronic identifiers), merchants do not know how much they will be charged on an individual transaction;  

3) Visa and MasterCard could make it possible for merchants to identify and determine interchange on the front end but they do not.  As a merchant, we can better guess what the winning lottery numbers are than what the exact interchange fee charged per transaction was. There are nearly 100 separate fees and all are bundled into categories on our monthly statement.  Visa and MasterCard have pages and pages of confusing fee schedules on its website, which we challenge any merchant to fully understand, down to the penny;

4) A respectable solution, until our litigation is resolved, is for MasterCard and Visa to post the exact interchange fee charged on every debit and credit card receipt. This is the defination of “transparency.”  MasterCard’s posted Merchant Rules are so weighty, but not fully followed, even by them.  We regularly notice retailers posting minimum purchase requirements, but are unfamiliar whether MasterCard and Visa fully engages each violation. We even pointed out that the American Red Cross had a $5.00 minimum charge on its website. How many restriction signs do you regularly see near the register warning that payment cards are only accepted if above a certain amount? Competition not cartels should control prices, and any smart business will prudently pass on the reduced interchange fee savings to consumers.

[Commentary: WayTooHigh.com]

UnFairCreditCardFees During the Holiday Season and Beyond

From the front sales counter in this battle against the credit card cartel and its member banks comes this holiday story.

This afternoon, a customer at 30 Minute Photos Etc. presented her debit card, which was nearly invisible to distinguish from a traditional credit card.  It was processed as a debit card and the key pad handed to the shopper to enter their PIN number.  She said “oh no, I want this processed as a credit card.” 

What did this mean?  We are charged a much higher interchange fee, rather than a flat-rate, and the consumer still has the funds quickly withdrawn from her account.  The card association’s are conditioning consumers to insist that their debit card be processed as a credit card, even though fraud rates are much less for PIN, rather than signature payment transactions on the MasterCard and Visa network.

[commentary: WayTooHigh.com]

“EU to MasterCard: Credit Card Interchange Fees Must be Cut” (via MPC news release)

U.S. Groups Opposed to Unfair Credit Card Fees Applaud Ruling, Urge Congressional Action Here

[Merchants Payments Coalition, news release] Washington, D.C. – December 19, 2007 – Today a coalition of U.S. merchants opposed to unfair credit card fees (unfaircreditcardfees.com) welcomed a ruling by the European Union (EU) Competition Commission that MasterCard’s credit card interchange fees for consumers must be cut across the 26 member nations of the European community. 

Calling the MasterCard credit card interchange fee system illegal and an unfair burden on European consumers and merchants, EU Competition Commissioner Neelie Kroes said “Consumers foot the bill, as they risk paying twice for payment cards:  once through annual fees to their banks and a second time through inflated retail prices paid not only by card users but also by customers paying cash.”

“The EU commission report underscores that Visa and MasterCard hit consumers coming and going.  Cutting credit card interchange fees is an important victory for Europeans as well as for anyone traveling there,” said Tim Hammonds, President and CEO of the Food Marketing Institute, a Merchants Payments Coalition (MPC) executive committee member.  “But American consumers and merchants pay more than twice as much as Europeans – two dollars out of every $100 directly to Visa and MasterCard issuers.  These exorbitant hidden fees are out of proportion to the amount that would be paid in a competitive market,” added Hammonds.

The EU competition commission concluded that MasterCard abused its dominant position in the market by setting credit card interchange fee levels too high.  In January, Commissioner Kroes referred to Visa Europe and MasterCard as “an effective duopoly” that make “outrageous profits”, and that consumers are being “ripped off” by card fees. 

“Global recognition that Visa and MasterCard engage in illegal price fixing is a call to action for the Congress in 2008,” said Hammonds, referring to moves by Britain and Australia that have dramatically reduced credit card interchange fees in those countries as well in recent years. Credit card interchange fees paid by U.S. consumers and merchants to Visa, MasterCard and their member banks is expected to total more $40 billion dollars this year.

Credit card interchange fees in the United States, ultimately paid by American consumers, are currently more than twice as much on average as they are in Europe — the same credit card interchange fees just ruled too high by EU Commissioner Kroes.  U.S. interchange fees on average are about 2 percent, while Visa Europe rates, for example, are capped at 0.7 percent.

Raising hidden credit card interchange fees is how Visa and MasterCard encourage banks to issue more credit and debit cards – as long as rising rates are kept secret, consumers have no way of knowing the extra costs they are paying.  “That’s why U.S. interchange rates are among the highest in the developed world,” said Hammonds. 

In fact, Visa and MasterCard still treat American merchants and consumers the same way they used to treat the Europeans.  Here, credit card interchange fees are set in secret and credit card company rules make it practically impossible for merchants to tell customers how much they are really paying. 

Interchange rates in the United States are now approximately two percent; in other words, two dollars out of every $100 spent on credit and debit cards goes to the credit card companies and consumers who pay whether they use plastic, checks, or cash.  In the United States, interchange fees are the biggest credit card fee you have never heard of, dwarfing all the other credit card fees:  late fees, over-the-limit fees, balance transfer fees, annual fees, inactivity fees, penalty interest fees, universal default, and even ATM bank fees.     

The MPC is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit: UnfairCreditCardFees.com

“Retailers Say U.S. Should Follow European Ruling Ordering MasterCard to Withdraw Hidden Credit Card Fee ” (via NRF Businesswire release)

[Businesswire, Dec 19] The National Retail Federation today welcomed a ruling by the European Commission that hidden fees currently charged by MasterCard to process credit card transactions in Europe – similar to those that cost U.S. shoppers $40 billion annually – drive up costs for consumers in violation of EC rules and must be withdrawn within six months.

“European authorities say MasterCard is double dipping in Europe, and that’s exactly what we think both MasterCard and Visa are doing here in the U.S.,” NRF Senior Vice President and General Counsel Mallory Duncan said. “Visa and MasterCard are charging billions of dollars directly to consumers for all the fees that show up on their monthly statements, then they turn around and charge billions more from the hidden credit card fees they force merchants to include in the price of merchandise.”

“These fees drive up the cost of merchandise for shoppers while delivering little if any benefit commensurate with the billions charged,” Duncan said. “It’s time for this to stop, and authorities here in the United States should take the European ruling as a signal that it’s time to bring the same relief to U.S. consumers.”

The European Commission ruled today that so-called “interchange” fees charged by MasterCard and its banks violate EC Treaty rules on restrictive business practices and “inflated the cost of card acceptance by retailers without leading to proven efficiencies.” The commission ordered MasterCard to withdraw the fees within six months or face fines equivalent to 3.5 percent of global revenues.

The commission said the fees are “not illegal as such” and stopped short of saying MasterCard could not charge any interchange fee at all. But any replacement system of fees, even if lower, would be allowed under EC rules only if MasterCard could show that it “contributes to technical and economic progress and benefits consumers.”

EC Competition Commissioner Neelie Kroes said the fees drive up costs for consumers as well as retailers.

“Consumers foot the bill as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices,” Kroes said in releasing the ruling. “The commission will accept these fees only where they are clearly fostering innovation to the benefit of all users.”

Averaging close to 2 percent in the United States, interchange is a fee Visa and MasterCard banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected more than $36 billion in interchange fees last year, up 17 percent from 2005 and 117 percent since 2001. This year, the amount is expected to top $40 billion, or about $350 per household. Interchange is largely unknown to most consumers because Visa and MasterCard don’t disclose the fee on monthly statements and prohibit merchants from disclosing it on receipts.

MasterCard interchange rates for cross-border transactions in Europe currently range from 0.8 percent to 1.2 percent of each transaction. Visa was not addressed in today’s ruling but reached an agreement with the EC in 2002 that restricts its fees – previously averaging 1.1 percent – to a maximum of 0.7 percent. That agreement ends at the end of 2007, and the EC said today that beginning in 2008 Visa will be “responsible to ensure that its system is in full compliance with EU competition rules.”

NRF is leading retailers’ fight against soaring interchange costs in the United States, and Duncan testified before the House Judiciary Committee’s Antitrust Task Force in July that collusion between banks when setting the fees has violated U.S. antitrust law. The hearing was the second time Congress has looked at interchange practices in the past two years following a Senate Judiciary hearing on possible antitrust violations in July 2006. In addition, approximately 50 federal antitrust lawsuits against Visa, MasterCard and their member banks have been consolidated in U.S. District Court in New York and are awaiting action.

The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees – about one in five American workers – and 2006 sales of $4.7 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. http://www.nrf.com

“MasterCard Europe to Challenge European Commission Decision on Cross-Border Interchange Fees” (MasterCard Press Release)

Click here to view MasterCard Dec 19 news release. 

If Adopted Across the EU, Decision Could Lead to Higher Cardholder Costs and Fewer Electronic Payments, and Impede the Implementation of SEPA

Waterloo, Belgium and Purchase, NY, December 19, 2007 – MasterCard Europe said that it will appeal to the European Court of First Instance today’s decision by the European Commission regarding MasterCard Europe’s default cross-border interchange fees. The Commission’s Order requires the company, among other things, to “repeal [its] Intra-EEA fallback interchange fees, as well as [its] SEPA/Intra-Eurozone interchange fees” within six months. The Order applies only to “interchange fees for MasterCard branded consumer credit and charge cards and for MasterCard or Maestro branded debit cards”.MasterCard Europe believes that it has strong grounds for its appeal. While it will comply with the Commission’s Order, the company said that it is prepared to take action so that its payment products remain competitive and continue to benefit the millions of European cardholders who use and merchants that accept MasterCard and Maestro cards.

MasterCard Europe said its decision to appeal is based on its firm conviction that market forces, not regulation, should drive key decisions such as the setting of interchange fees and retailers’ choices over which forms of payment to accept. The company also pointed to the experience in Australia, the only other jurisdiction in the world to regulate interchange fees, where consumers have ended up paying more for credit cards and receiving fewer benefits and less choice.

If left unchallenged and adopted by national regulators, the Commission’s approach would not only be bad news for consumers but a blow to investment and innovation in the European payments industry, resulting in slower implementation of the Single Euro(pean) Payments Area (“SEPA”), MasterCard Europe said today.

Commenting on the decision, Javier Perez, President, MasterCard Europe, said:

“We are disappointed that after years of review of MasterCard Europe’s transparent, default cross-border interchange fees, the Commission failed to appreciate that without a mechanism to fairly share costs among all the participants in a payment system that functions across Europe and around the globe, consumers will be hurt. Although MasterCard Europe itself does not receive any revenue from interchange, it, like all other payment systems, must balance the needs of, and costs to, both cardholders and merchants in order to remain competitive and innovative.

“The Commission has also ignored the experience in Australia where regulators forced down interchange fees, resulting in higher cardholder charges, reduced card features and benefits, less competition, and diminished investment and innovation. Moreover, there is no evidence that consumers benefited from lower merchant prices as regulators predicted. Not surprisingly, the Australian payment card business has seen slower growth since regulation was introduced.”

Given that the Commission’s Order appears to call for an even greater reduction in interchange fees than occurred in Australia, the adverse effects on European consumers could be even more severe.

Perez continued:

“Forcing drastic reductions in interchange fees across Europe could delay implementation of SEPA, as well as reduce incentives for payment institutions to expand into new domestic European payments markets. In addition, a large reduction in issuers’ revenues would force cutbacks on the necessary investments in new services and technology. This goes directly against the goal of establishing a single market for payments throughout the euro area and the European Union as a whole so that all consumers can pay for goods and services across national borders with the same ease and under the same conditions as when they make payments at home. Because we are strong supporters of SEPA, we are very concerned that the Commission’s decision casts a shadow of uncertainty over this effort and, ultimately, will hurt European competitiveness.

“Far from providing clarity, today’s decision leaves MasterCard Europe and the entire payments industry in doubt as to what interchange fees the Commission will allow.

“Europe wants to reduce reliance on cash in favour of electronic payments, which are safer, cheaper, more secure and more convenient for consumers and merchants alike. The best way to accomplish this is to allow open, transparent and efficient payment systems like MasterCard and Maestro to compete unhindered in the market,” he said.

“And, as is often the case when market forces are supplanted by regulation, it is the smaller merchant and less-well-off consumer that will be hurt the most,” he added.

MasterCard Europe has not yet received a copy of the Commission’s decision. However, based on the Order and the arguments advanced by the Commission during the proceeding, the company believes that the Commission has failed to appreciate that, in order to compete successfully with three-party systems and other forms of payment, four-party payment systems like MasterCard and Maestro need to deliver value to cardholders and merchants. This requires interchange fees or some other cost-balancing mechanism.

Perez concluded:

“While we will meet all of our legal obligations during the appeal, MasterCard Europe will take action so that its payment products continue to benefit cardholders and merchants, and remain competitive. Despite our disagreement with the decision, as we have done in the past, we will continue to seek common ground with the Commission in order to serve the interests of European consumers and merchants.”

In open, four-party systems like MasterCard and Maestro, the four parties are the cardholder and his or her bank (the “issuer”) and the merchant and its bank (the “acquirer”). Default interchange fees, which have been part of the MasterCard system for more than 40 years, have proven to be the most transparent and efficient way to balance the costs and benefits among these parties and promote a healthy, competitive and innovative payments industry.

Interchange is a small fee paid by the acquirer to the issuer, and is typically passed on as a component of the fee merchants pay for the many benefits they receive when they choose to accept payment cards. These include increased sales, fast and secure payment, and protection against fraud and cardholder default. Without interchange fees or some other balancing mechanism, cardholders would have to pay nearly all of the costs of the payment card system. MasterCard believes not only that this would be unfair but that, in the long run, it would not even be in the merchants’ best interest. This is because it would lead to greater reliance on cash and more expensive three-party system cards, like those of American Express, where the payment company acts as both issuer and acquirer and typically charges merchant fees that are higher than those of MasterCard and other four-party systems.

MasterCard Incorporated Conference Call

Click here to listen (through Dec 20)

A Priceless Holiday Gift For Retailers and Consumers

WayTooHigh.com commentary on today’s European Commission ruling that MasterCard’s interchange fees imposed on retailers are illegal.   Visa has an exemption that runs through the end of the year.

• The EU decision is yet another rejection of the justifications offered by MasterCard and Visa for fixing of interchange fees paid by merchants.  

• The Australian RBA, the UK OFT, and the earlier EU decision on Visa all have rejected the networks’ excuses.

• This decision, and the others, will certainly get the attention of U.S. courts, regulators, and Congress. It has piqued interest by U.S. merchants and today marks the highest number of visits to WayTooHigh.com – The Credit Card Interchange Report.

• It is long past time for the networks to reduce or eliminate interchange fees in the U.S. rather than face crippling liability in U.S. courts.

• Remember, nearly 100 separate merchant interchange fees in the U.S. are more than double the rates in Europe.

[commentary: WayTooHigh.com]

Speach: “Neelie Kroes – European Commissioner for Competition Policy Commission “

Neelie Kroes – European Commissioner for Competition Policy Commission Prohibits MasterCard’s intra-EEA Multilateral Interchange Fees Introductory remarks at press conference 

Brussels, 19th December 2007Ladies and Gentlemen,

The Commission has today adopted a decision that MasterCard’s multilateral interchange fees, or MIF, for cross-border payment card transactions with MasterCard and Maestro branded debit and consumer credit cards in the European Economic Area (EEA) violate EC Treaty rules on restrictive business practices.

The Commission has concluded that MasterCard’s MIF, a charge levied on each payment at a retail outlet when a card payment is processed, inflated the cost of card acceptance by retailers without leading to any advantage for consumers or retailers.

On the contrary, consumers foot the bill, as they risk paying twice for payment cards. Once through annual fees to their bank. And a second time through inflated retail prices, given that retailers set their prices taking account of all costs, including MasterCard’s interchange fees. MasterCard’s MIF therefore acts like a “tax on consumption” paid not only by card users but also by customers using cash and cheques.

The decision requires MasterCard to withdraw its MIF within six months. If MasterCard fails to withdraw the fees or circumvents the Commission’s decision, the Commission may impose daily penalty payments of 3.5% of MasterCard’s daily global turnover.

The Commission decision does not mean that all MIFs are illegal, but that MasterCard’s particular MIF is illegal. A MIF in an open payment card scheme such as MasterCard’s is only compatible with EU competition rules if it contributes to technical and economic progress and benefits consumers. And MasterCard did not manage to convince us that this is the case.

It is not sufficient that a MIF simply increases the sales volumes of a scheme to the sole benefit of the member banks. Rather, a MIF should contribute to objective efficiencies such as to promote more efficient payment means to the detriment of less efficient ones. Also, the proceeds from a MIF should not just increase bank’s revenues they should be clearly dedicated to the achievement of efficiencies.

So if after today’s decision MasterCard wanted to introduce a new MIF it would have to demonstrate clearly to the Commission that there would be advantages for both retailers and consumers, for example in terms of fostering innovation such as by improving the security of payments to combat card fraud.

Banks have traditionally set MIFs without involving either merchants or consumers.  The process of setting a MIF could benefit from more transparency. Both consumers and merchants should have a say.

By way of explanation, I should add that the “interchange fees” concerned by this decision are fees which banks charge one another for transactions with a payment card. For transactions in shops, the interchange fees are typically paid by the bank of the retailer to the bank of the cardholder. It is when interchange fees are decided multilaterally that they are referred to as a “MIF” or Multilateral Interchange Fee.

The MIF at stake in the present case is a charge levied on each cross-border payment with MasterCard and Maestro branded cards as well as on domestic payments in eight EU Member States (Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta and Greece). In some of these Member States, MasterCard’s MIF constitutes up to 70% of the price businesses pay for accepting credit cards.

The economic importance of MasterCard’s MIF – and of MIFs in general – cannot be underestimated. In the EU, over 23 billion payments are made every year with payment cards, with a value exceeding 1350 billion euros. MasterCard’s MIF is among the highest in Europe, set at more than 0.50% for debit card payments and more than 1% for credit card payments. This is twice as much as MasterCard charges in other continents such as Australia.

As you may know, the first phase of the Single Euro Payments Area will start in a few weeks, at the beginning of 2008. Today’s decision will support the SEPA project in two ways.

First, the decision orders MasterCard to refrain from implementing its new “SEPA” interchange fees for the Eurozone. This prohibition will prevent that, in the area of payment cards, SEPA leads to permanent price increases to the detriment of consumers. In several Member States (such as in the Nordic and the Benelux countries) efficient domestic payment schemes operate without a MIF at all. If banks replaced their existing debit cards with Maestro cards, MasterCard’s MIF would inflate the cost of card acceptance in these countries.

Second, today’s decision also provides more legal certainty. We know that some stakeholders are preparing the ground for new schemes. The question arises whether the Commission will once and for all prohibit all MIFs, including MIFs for new schemes in a start up phase. The answer is no. The decision cannot and does not prohibit MIFs as such. Every scheme and every MIF must be examined on its own merits.

Today’s decision is therefore important for SEPA. This comes at a time when – as I understand– the European Payments Council, the body setting up SEPA, has also decided to provide more clarity on what it actually takes to be “SEPA compliant” for banks, card schemes and payment cards.

There has been a confusion in the market. Many operators understand that a SEPA compliant card scheme must cover all of the 31 SEPA countries. Obviously, only MasterCard and Visa could have met this requirement. However, the European Payments Council has yesterday decided to clarify that there is no such requirement. This means that domestic card schemes in Europe can develop into genuine competitors of the international schemes. I congratulate the industry with this move forward.

Let me finally say a few words regarding the other large payment card scheme in Europe, VISA. Back in 2002, the Commission adopted an exemption decision concerning VISA’s MIF. This exemption expires in a few days, on 31 December and from that moment on VISA will be responsible to ensure that its system is in full compliance with EU competition rules.

As an “interested third party” in the MasterCard proceedings, VISA already knows about the Commission’s objections concerning MasterCard and will also obtain a non confidential version of today’s decision. We trust that the MasterCard decision will provide VISA with guidance for the way ahead. As I have already said, though, each case needs to be assessed on its merits.

Ladies and Gentlemen, let me conclude.

Card payments are increasingly important in today’s economy. Throughout the EU, SEPA will further enhance economies of scale in the cards industry to the benefit of consumers.

Today’s decision addresses MasterCard’s anticompetitive behaviour and removes the danger of inflated prices due to the MasterCard MIF.  Ensuring that the Single Market for payments can work efficiently is a priority of the Commission. We will remain particularly vigilant in this area and address any competition restrictions that threaten to hamper the proper functioning of the market.

Antitrust: Commission prohibits MasterCard’s intra-EEA Multilateral Interchange Fees

The European Commission has decided that MasterCard’s multilateral interchange fees (MIF) for cross-border payment card transactions with MasterCard and Maestro branded debit and consumer credit cards in the European Economic Area (EEA) violate EC Treaty rules on restrictive business practices (Article 81). The Commission concluded that MasterCard’s MIF, a charge levied on each payment at a retail outlet when the payment is processed, inflated the cost of card acceptance by retailers without leading to proven efficiencies. MasterCard has six months to comply with the Commission’s order to withdraw the fees. If MasterCard fails to comply, the Commission may impose daily penalty payments of 3.5% of its daily global turnover in the preceding business year. MIF are not illegal as such. However, a MIF in an open payment card scheme such as MasterCard’s is only compatible with EU competition rules if it contributes to technical and economic progress and benefits consumers. In the EU, over 23 billion payments, exceeding a value of €1350 billion, are made every year with payment cards.

Competition Commissioner Neelie Kroes said: “Multilateral interchange fee agreements such as MasterCard’s inflate the cost of card acceptance by retailers. Consumers foot the bill, as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices paid not only by card users but also by customers paying cash. The Commission will accept these fees only where they are clearly fostering innovation to the benefit of all users.” The MIFMasterCard’s business model includes a mechanism that determines a minimum price merchants must pay for accepting the organisation’s payment cards. This mechanism is based on a complex network of multilaterally agreed inter-bank fees which industry refers to as “interchange fees”. At stake in today’s decision are MasterCard’s intra-EEA fallback interchange fees (“MasterCard’s MIF”). MasterCard’s MIF is a charge on each payment at a merchant outlet. This charge ranges between 0.4% of the transaction value increased by €0.05 and 1.05% increased by €0.05 for payments with Maestro debit cards, and between 0.80% and 1.20% for transactions with MasterCard consumer credit cards. The fee is retained by the customer’s bank (the “issuing bank”) and charged to the merchant’s bank (the “acquiring bank”), which then takes this cost element on board in setting its prices to merchants. MasterCard’s MIF applies to virtually all cross-border card payments in the EEA and to domestic card payments in Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxemburg, Malta and Greece. Approximately 45% of all payment cards in the EEA either bear a MasterCard or a Maestro logo and MasterCard cards are accepted at some 85% of businesses accepting debit cards in the EEA.The Commission prohibited MasterCard’s MIF because it inflates the base on which acquiring banks charge prices to merchants for accepting payment cards, as the MIF accounts for a large part of the final price businesses pay for accepting MasterCard’s payment cards. This restriction of price competition harms businesses and their customers.MasterCard presented its MIF as an instrument to “maximise system output”. However, during four years of investigation MasterCard failed to submit the required empirical evidence to demonstrate any positive effects on innovation and efficiency which would allow passing on a fair share of the MIF benefits to consumers. The Commission therefore concluded that MasterCard’s MIF does not lead to objective efficiencies that could balance the negative effects on price competition between its member banks.The investigationThe Commission’s investigation was initially based on a series of notifications that MasterCard’s legal predecessor, Europay International S.A., submitted between May 1992 and July 1995, as well as on a complaint by EuroCommerce of May 1997. After two Statements of Objections (see MEMO/06/260) and an oral Hearing in November 2006, the Commission further verified MasterCard’s arguments through additional fact-finding.Past case practiceIn 2002, the Commission exempted a similar system proposed by Visa (see IP/02/1138) after Visa offered substantial reforms to its MIF. In particular, Visa offered to reduce progressively the level of its fees from an average of 1.1% to 0.7% until the end of 2007 and to cap fees at the level of costs for specific services. Visa also enhanced the transparency of fees and allowed banks to reveal information about the MIF to businesses. The exemption, however, expires on 31 December 2007 and Visa will from that moment on be responsible to ensure that its system is in full compliance with EU competition rules.SEPA The MasterCard MIF decision follows the Commission’s sector inquiry into retail banking in 2005 and 2006 (see IP/07/114 and MEMO/07/40), which found that interchange fee agreements might stand in the way of a more cost-efficient payment cards industry and of the creation of a Single Euro Payments Area (SEPA). The inquiry found that in five EEA countries (Denmark, Netherlands, Norway, Finland, Luxembourg) the payment card system functions without any MIF. The MasterCard decision will support the creation of a SEPA by fostering greater competition in the cards market and preventing an artificial increase of merchant fees due to an illegal pricing mechanism such as MasterCard’s MIF. 

For MasterCard’s Possible Appeal

First question after the EU’s charge that interchange rates are way too high, is this gem: why are the merchant interchange rates in the U.S. more than double the fees charged within many European nations?

Relax MasterCard.  This is a rhetorical question which has been previously addressed below through more than 875 previous WayTooHigh.com news and commentary updates.

MasterCard Expected to Appeal EU Ruling: The Financial Times

According to The Financial Times (Dec 18), ” Mastercard is widely expected to launch an appeal if, as expected, the European Commission finds that its interchange fees on cross-border payments breach competition rules in a decision due to be announced on Wednesday.”

Click here to view entire article.

UPDATE: An Extraodinarily Fictional Read, MasterCard® Explains the Value of Interchange Fees

According to a posting on the MasterCard® Newsroom pages, the second largest credit card association writes (what we assert is) extraordinary fiction.

Click here to read it in their own words.

This is MasterCard’s attempt to justify the annual $40 billion fee that merchants and consumers are forced to pay; many are unaware of this hidden tax.

While MasterCard explains that “a number of merchants and merchant trade groups have filed several lawsuits alleging that the U.S. interchange fees that MasterCard establishes violate antitrust laws, and that the cost of interchange is too high,” the litigation is a class-action which represents all merchants – not just a few.

The litigation was brought on behalf of us (30 Minute Photos Etc.), as lead plaintiff, and other businesses and trade associations across the country, not by lawyers. Rather than address the damages, the card association’s published points accuses lawyers for seeking these cases to enrich themselves, rather than discussing the billions-of-dollars that benefit the member banks.

In the case of ScanMyPhotos.com (a division of 30 Minute Photos Etc.) we agree with MasterCard that “every business establishes a price for the goods and services it provides.” in our case, we commercialized an entirely new business model around digitally preserving generations of analog pictures; we designed a technology and operation that also provides ultra low fees. We are not a cartel that artificially fixes prices, in fact, we regularly share our story with the entire photo imaging industry and regularly speak at trade shows like the Photo Marketing Association and even at last January’s (CES) Consumer Electronics Show convention – our rates and how it case about are a secret to nobody.  We will again address CES in January 2008.

In our opinion, the biggest misuse of words is MasterCard’s explanation that the interchange fee benefits to merchants is that it is a “small fee.” Forty-billion dollars each year is anything but a small fee. MasterCard does not fully address the history of these fees and fails to explain that it was created to be cost-based – to cover the manual credit card imprint costs and weighty processing charges incurred when merchants had to mail the paper receipts to have it processed. Today, it is mostly electronic, lightening-fast; and even faster than our super-speedy photo scanning business.

They even use the word “incredible” [”Accepting payment cards provides merchants with an incredible value at a fair price.]” They are right, it is incredible, as in so implausible as to elicit disbelief.

The reality is that with a nearly 80% market dominance, MasterCard and Visa® (which until recently were both owned and controlled [Visa is preparing to launch an IPO] by its member banks) are a monopoly. They control the market. Merchants, like us, are unable to choose not to accept their debit and credit cards – we would be out of business – especially companies like us with a dominant ecommerce revenue stream.

As for interchange fees, it certainly does “help foster… security” but not so much for consumers, as explained by MasterCard, but for the member banks, which look forward to this extraordinarily large cash-cow and unbridled revenue stream; it’s a tax few know about, but generates non-stop riches for MasterCard, Visa and its member banks. If they were so concerned about fraud costs, they would cease the issuance of billions of direct mail solicitations and providing credit cards to risky consumers. Today’s technology is also helping to lower other types of fraud costs, yet interchange fee adjustments do not reflect the cost savings either.

The fees do encourage “banks to innovate and develop new payment options,” but in some cases, to the detriment of cardholders and merchants. Look at the one-hundred plus separate merchant interchange fees which create new revenue streams every time a new innovative scheme is hatched to plunder more money from retailers and cardholders.

When reading the MasterCard explanations, they even discuss how the payment industry is “competitive.” As we see it, the only contest they host is one-way, and the competition is to seek out new ways to increase interchange fees. With an 80% market share, competition is a fleeting dream. Why are rates about 1.7% for an average transaction in the U.S., but only .7% in the U.K, .55% in Australia, and 0.0% for PIN-based cards in Canada?

And, according to MasterCard, they do “recognize that merchants do want lower costs for all aspects of their business.” It is encouraging that they recognize this fact, but if they strive to help lower interchange costs, why then are fees regularly rising?

Words and actions are very different when it comes to interchange issues and our WayTooHigh.com Credit Card Interchange Reportboasts 875 postings since February, 2005. WayTooHigh.com provides our prospective as a long-time retail and ecommerce business.

[commentary: WayTooHigh.com, originally posted Aug 23, 2007]

Overview: Popular WayTooHigh.com Interchange Commentaries

Interchange Fees Should Have Gone the Way of the IBM Selectric Typerwriters (WayTooHigh.com)

An Extraodinarily Fictional Read: MasterCard® Explains the Value of Interchange Fees (WayTooHigh.com)

Sixty-percent Rate Cut in 2008 by MasterCard Europe (Commentary, WayTooHigh.com, via WSJ)

Seventy-two pages, five-pages or one line? (WayTooHigh.com)

Every Credit and Debit Card Receipt Should Include Interchange Charge (WayTooHigh.com)

Merchants sue MasterCard, Visa over ‘exorbitant’ interchange rates

Four-million “pay-pass” cards are another four-million more reasons to end Interchange fees (Commentary: WayTooHigh.com)

British Regulator “Slams Mastercard Fees” (BBC NEWS)

Summary: Briefing on Interchange Issues (WayTooHigh.com)

More Holiday Cheer Planned For Merchants and Consumers

After more than two years and a non-stop battle against Visa, MasterCard and its member banks, we are pleased to be on the cusp of major news from our friends in Europe.

According to Bloomberg, “[t]he commission has been investigating MasterCard’s interchange fee for more than five years. MasterCard won’t be fined because it informed the EU about the fee, the commission has said previously.”

click here to read the entire article. 

News on Merchant Interchange Lead Plantiff, Mitch Goldstone at CES

click here for link.

ScanMyPhotos.com CEO Mitch Goldstone to Speak at the Consumer Electronics Show.   Goldstone to speak in Las Vegas at the “Spotlight on Imaging” CES panel on Tuesday, January 8th.

IRVINE, Calif., Dec 17, 2007 (BUSINESS WIRE) — ScanMyPhotos.com, today announced that president and CEO Mitch Goldstone will speak again at the 2008 International Consumer Electronics Show (CES(R)) as part of a panel discussion entitled: “Spotlight on Imaging.” The session is cosponsored by Picture Business Magazine and the Consumer Electronics Association (CEA(R)) which produces the 2008 International CES – the world’s largest consumer technology trade show.

The panel discussion at the 2008 International CES will take place on January 8, at 3:00 p.m.  It will include essential topics about the future of the photo imaging industry and the commercialization of new digital imaging technologies to inspire and enhance the consumer photo imaging experience.

ScanMyPhotos.com, a division of 30 Minute Photos Etc. operates a retail and ecommerce-based photo imaging company that provides super-fast nationwide digital scanning and related photo imaging services. Goldstone and partner, Carl Berman, well-known leaders in the photo imaging industry founded 30 Minute Photos Etc. in 1990 as a retail-based photo center in Irvine, CA.

Today, the company and its ScanMyPhotos.com division provides a variety of photo memory services and products to help picture-takers preserve generations of family memories. These include services using: “Perfectly Clear” photo enhancements by Athentech, professional DVD data discs produced by Microtech’s robotic DVD publishing system, Lucidiom self-service digital photo kiosks, and KODAK’s award-winning i660 document imaging scanners – the engine behind the company’s capacity to digitally scan 1,000 photographs in under ten-minutes.

ScanMyPhotos.com helped commercialize the KODAK document imaging scanners for the photo industry and is profiled on the Kodak.com website. The photo entrepreneurs created a local walk-in and “fill-the-box” scanning service for consumers to order prepaid USPS Priority flat-rate boxes which are mailed out the same day it is ordered. Consumers fill the co-branded USPS and ScanMyPhotos.com prepaid boxes with as many pictures as it can hold (more than 1,600 4×6″ photos). All orders are processed and digitally scanned as jpeg files at 300 dpi and mailed back the same day. The prepaid box costs just $99.95 – consumers also receive a free box when they purchase two prepaid boxes so they can have more than 5,500 photo snapshots scanned for $199.90.

ScanMyPhotos.com, has scanned nearly four million pictures from around the world and was recently profiled or mentioned in The Wall Street Journal, USA Today, The Chicago Sun-Times, The New York Times, Reader’s Digest, Women’s Health Magazine, The Orange County Register, Family Tree Magazine, Popular Photography, Direct Marketing News and scores of other media and Internet / blog coverage

“EU Seen Finding MasterCard Guilty Of Overcharges Wed-Sources” (via Dow Jones)

The European Commission is expected to tell MasterCard Inc. (MA) Wednesday that the fees it charges stores for international credit …

Click here to read article.

Wednesday’s Planned EU Ruling Against MasterCard

According to an updated Dec 17 Reuters article [click here], “MasterCard has said it should keep the principle of setting its own fees and that the EU executive has no power to cap them.”

Remember, it was MasterCard which last year, proposed a $50.00 cap on interchange fees at service stations for charge card electronic payments.  Since MasterCard announced that action more than a year ago, we are uncertain whether they ever followed through.  And, this raises a bigger question: if they agree to cap gas charges at service stations, then, why not for all transactions?  

Interchange fees are obsolete and on Wednesday, we anticipate that the EU will provide what will generate a substantial holiday gift to all retailers and consumers.

 [commentary: WayTooHigh.com, via Reuters article]

Reuters: “EU Executive Nears Ruling on Credit Cards”

According to Reuters, “Europe’s credit card industry expects a landmark ruling from the European Commission on fees this week that may determine the range of cards consumers will have in their wallets in future.  EU Competition Commissioner Neelie Kroes is expected to say that MasterCard … must cut the so-called interchange fee it sets on the chain of banks that allow a customer to buy goods and services outside their home state, industry officials say.”

Click here to read Dec 16 Reuters article

More on the New Debit-Card Accepting Monopoly Game: Washington Post

Click here to read the Dec 15 Washington Post article which provides more information to compliment our recent Monopoly board game posting. 

MasterCard Interchange Fees Are Illegal: EU Ruling Expected to Announce Next Week

According to Thompson Financial News (Dec 14) [click here to read article], next week the European Commission will rule that MasterCard’s charges are illegal and violated the law. According to the report, “[t]he commission has longed feared that interchange fees, set at around 1 per cent per purchase, paid by retailers’ banks to card-issuing banks, are being abused to collect the highest rate of return.”  Interchange rates for the identical services in the U.S. are nearly double the charges in Europe.

[Source, via Thompson Financial]

The Difference Between a Debit and a Credit Card

A customer just had us [ScanMyPhotos.com] digitally preserve 1,000 photos onto a DVD while they waited.  This is a very typical customer and because the payment card was identified as a “check card” we pressed the “debit” button on the electronic payment terminal and handed the person the key pad to enter their PIN number.

They paused and asked us to enter it as a credit card, even though the card was a check card.  Many sales clerks would have had difficulty even differentiating between a check / debit card and a credit card – this one had hard-to-read black lettering, which is part of Visa, MasterCard and its member banks design tricks to confuse retailers into accepting the card at the much higher signature credit card rate.

As the customer requested, we reentered the transaction as a credit card, even though the funds are quickly removed from their checking account anyway.  The merchant interchange charge to us was about $1.35, rather than a flat fee of about $0.25 – $0.50 if the transaction was processed as a PIN-based debit card.  Note: PIN transactions are much more secure than signature card entries, yet the fees are a flat, and often much lower rate. 

Eighty-five cents is not, by itself a great deal of lost revenues, but when added with millions and millions of other transactions every day, retailers are faced with extraordinary fees.

[Commentary: WayTooHigh.com]

Visa and MasterCard Gift Cards, Part II

Look at the back of a Visa Gift Card package to read their “important things to know.”

Visa’s solution for handling low balances on gift cards is to have you ask sales clerks to split the charge, which as a merchant we know is nearly impossible when the register is crowded with customers and adding any special transactions leads to nightmarish roadblocks.

In Visa’s own words: “If you try to purchase an item of greater value than your card balance, your card will be declined.  To purchase an item that costs more than the balance on your card, use a second payment method for the difference.”

If you thought the card associations’ and member banks reaped windfall profits from their merchant interchange fees, this is pure magic for them.  Declining cards leads to uncomfortable sales experiences and we think many consumers will just throw away the card with the small balances, and thus earning even more money for the banks. 

The film The Graduate had it right when telling Benjamin that the future was in “Plastic.”  How visionary they were.

[commentary: WayTooHigh.com]

“MasterCard Expected to Settle with American Express:” AP

Visa has already agreed to settle its very similar antitrust litigation with American Express and now MasterCard is poised to follow, according to the Associated Press. Click here to read article.

[Source, AP, via Thomson Financial delivered by Newstex]

Visa and MasterCard Gift Cards: Almost as Profitable as Interchange Fees

Visa and MasterCard are promoting their prepaid gift cards. MasterCard promotes this as “perfect for friends and family.”  It’s even more perfect for them and its member banks.

Why?

If you are like us, we recently used a prepaid credit card, but ran into trouble when the balance remaining entered single digits.  Not even Starbucks would accept the card, the message explained that the card was not valid. Think of the discomfort when you have only a few dollars remaining on your gift card. What do you do? The card associations and member banks hope that you just discard the plastic gift card, and then, guess who makes even more money, in addition to the merchant interchange fee billed when the gift card was purchased with plastic to begin with.

From the MasterCard website they offer the below advice, but, for us, the sales clerk was unable to handle this transaction and just passed back the card. Even MasterCard acknowledges that not all merchants can handle that transaction, and thus the open balance ends up back in the member bank and the card associations pockets.  MasterCard promotes that their cards are “more flexible than retail gift cards” which put them in a precarious position of competing with their core customer – the merchants, and fails to explain that retail gift cards can easily be drawn down to a zero balance.

What happens if I need to return an item I purchased using my MasterCard gift or other prepaid card?  “Yes, you can still use your MasterCard prepaid card. Just tell the cashier in advance how much to deduct from your prepaid card and how much you will pay using an alternate payment method such as your Debit MasterCard card. Note that this process, known as split tender, may not be supported by all merchants.

“Bah-Humbug!

[Commentary: WayTooHigh.com]

Who’s Running the Banks?

With today’s news that several major financial institutions’ stocks again plunged, we can’t help but wonder what type of inept leadership is controlling the banks?   With warnings of fourth-quarter write-downs and loan losses from billions in faulty and misguided subprime mortgages, the banks’ leadership is extra weak.  These are the same leaders who we assert sat around the board tables at Visa and MasterCard and conspired to illegally fixed merchant interchange fees.  After a while, these billions in missteps start adding up.  

 [commentary: WayTooHigh.com]

Citigroup’s New CEO: Encouraging

As a retailer and ecommerce business, we are encouraged that Citigroup Inc. has appointed Vikram Pandit as chief executive, because he doesn’t come with the hefty baggage that other, more well-known insiders have. Because he has never led a public company, let alone one facing billions in antitrust violations, this might be the turning point that merchants are seeking to regain credibility and question the bank’s (alleged) price-fixing allegations by setting merchant interchange fees by agreement.  According to Reuters, Mr. Pandit has “no experience leading a consumer business,” so we hope his first lesson will be to study WayTooHigh.com and the millions of other merchants’ disdain for the supracompetitive electronic payment fees. Citigroup is a member bank of both MasterCard and Visa’s shared cartel and as we assert, has conspired to collectively fix credit card interchange fees.

We wonder whether Mr. Pandit will shift direction and take responsibility for the bank’s violations?  Certainly, this would be a smart and prudent way to restore confidence in Citigroup.

[commentary: WayTooHigh.com]

Chicago Sun-Times Profiles ScanMyPhotos.com [30 Minute Photos Etc.]

Click here to view the Chicago Sun-Times’ Dec 10th profile.

Is MasterCard Intentionally Misleading Or Was The Credit Card Giant Misquoted?

See the below Buffalo First Business posting [link].  According to a comment by MasterCard Worldwide’s communications VP, Sharon Gamsin in today’s article about the card association’s interchange fees at service stations, she is wrong.  And, we know it.  According to the article she was reported to have said, “merchants don’t directly pay interchange fees, and these rates can be negotiated with their banks.”

Really now?

Fact. Interchange fees cannot be negotiated. The rates are so confusing, it takes MasterCard more than 100+ pages to post its fee schedule on the Internet.  The game is that Visa and MasterCard both don’t get the interchange fees. Well, someone is.  At $40,000,000,000 [that’s billion] each year, it certainly isn’t going into a piggy-bank. The fact is that until MasterCard and now Visa restructured their companies, the member banks owned both companies. Bank of America owned Visa and they owned MasterCard, for instance.  The member banks still own a near majority of MasterCard, even after the IPO.  Even with an independent board representation, our litigation goes back years and calls into question the many years that the two card associations were owned by the banks.  

Recap.  Yes! MasterCard does make money from interchange fees. They earn a percent from each transaction.  No! merchants are unable to negotiate their merchant interchange fees, and I challenge any WayTooHigh.com reader to find retailers who know exactly what their customers just paid in each single interchange transaction.  [see fee schedule].  Yes! merchants do pay interchange fees; I write out a check each month for it.  The game Ms. Gamsin is playing is that I write a check out to Chase Paymentech, not directly to MasterCard.  But, guess who still gets it’s cut.  If MasterCard didn’t earn interchange fees its stock wouldn’t be north of $200. Either way, guess who owns the largest payment processing company: Chase, as in JPMorgan Chase, one of the named defendants in the Merchant Interchange litigation, which is a co-owner of MasterCard and Visa. It’s a big circle of greed.

[commentary: WayTooHigh.com]

“Fees Fueling Frustration for Region’s Gas Retailers” (Buffalo Business First)

Click here to view article. 

Abstract:

What’s more frustrating, experts claim, has been the inability to get straight answers from credit card companies such as MasterCard and Visa about how such fees are structured.

According to Jeffrey Lenard, spokesman for the National Association of Convenience Stores, approximately 70 percent of all gas purchases were made with a credit or debit card last year.

Lenard cited NACS data, which indicates profits for gas stations and convenience stores in 2006 totaled $4.8 billion.   Credit card companies made more at gas stations and convenient stores than the stores did themselves,” Lenard said.

“The reason for interchange fees, we’re told, is to pay for the technology infrastructure and fraud protection. The U.S. is arguably the best in the world in both these categories. To say that interchange pays for those things is unfathomable to me.”

The amount credit card companies made processing those transactions: $6.6 billion.

“EU’s Kroes Warns Banks on Payments” (via AP)

EU Antitrust Chief Warns That New Bank Payment System Should Not Cost Customers More.  The EU’s antitrust chief Neelie Kroes warned banks on Monday that a new payment system should not be allowed to cut down choice or increase costs for customers.

Regulators have criticized the high level of these fees, saying card networks like Visa, MasterCard and American Express have failed to explain why they need to charge so much for handling payments.

Click here to read article.

[via AP]

“Merchants Applaud Senate Scrutiny of Credit Card Fees” (MPC)

According to their Dec 4 press release, the Merchants Payments Coalition is encouraged by a congressional hearing calling into question unfair credit card practices.  Today’s hearing, held by the Senate Permanent Subcommittee on Investigations, is among several held this year that are scrutinizing the unfair practices imposed on consumers and merchants by credit card companies.

“This hearing is another example of how serious the issue of credit card abusive practices is for everyone,” said MPC Chairman Mallory Duncan, senior vice president and general counsel at the National Retail Federation. “The credit card industry has profited from outrageous fees, and congressional attention is beginning to shed some light on a broken system.”

One of the most outrageous fees most people have never heard of is the “interchange” fee, a percentage of each transaction that Visa and MasterCard along with their member banks collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to 2 percent per transaction.

Unlike other credit card fees, credit card companies don’t show interchange on monthly statements while their rules make it virtually impossible to show it on receipts and make cash discounts very difficult to offer. Instead, stores are effectively required to include the fee in the price of merchandise, meaning higher prices for all customers, even those who pay by cash or check. The hidden fee cost consumers and merchants $36 billion last year and is expected to top $40 billion this year.

Earlier this year, the Senate Banking Committee held a hearing on the billing, marketing and disclosure practices of the credit card industry. In addition, Duncan testified on behalf of the MPC during a July hearing on credit card interchange held by the House Judiciary Committee’s Antitrust Task Force.  Duncan argued that Visa and MasterCard practices in setting interchange rates have constituted a violation of federal antitrust laws.  MPC advocates a payment system that is transparent and open to competition.

Anatomy of How an Anticompetitive Monopoly Works

Late last week, I was asked to fly east to meet with the president of a leading multi-national conglomerate. Because of the short notice, rather than sitting up front, I chose to fly economy but forgot that many flights now charge for food. 

The lesson, however, was a good reminder of how anticompetitive monopolies work.  The onboard snacks were five-dollars and if you want to eat, that was the choice.  But, it was not the only choice, I could have brought food from home, purchased a meal at the airport or anywhere else in advance.  While food is the gateway to our stomachs, Visa and MasterCard and its 80% market power are a principle gateway to commerce – they nearly own the market.

Unlike the many choices for selecting a meal, there is one leading choice for electronic payments and nearly all ecommerce.  Businesses, like us, are forced to accept both payment cards. 

Food on planes are a good example, and so too is one new theme of the board game Monopoly.  There is now an electronic banking version. No kidding. Click here to view. 

 

According to the game, you “wheel and deal your way to a fortune even faster using debit cards instead of cash! All it takes is a card swipe for money to change hands. Now you can collect rent, buy properties and pay fines – with the touch of a button! It’s a new way to play the family classic that’s been brought up-to-date with modernized tokens (including a Segway personal transporter, an Altoids tin, space shuttle, flat-screen TV, baseball cap and a dog in handbag!), higher property values and locations based on your favorite landmarks.” 

Very modern, but the only thing nearly as antiquated in design as was the original board game is the payment twist.  When merchant interchange fees were created, it was cost-based and used to cover the fees associated with a four-party clearing house.  They were created back when there were hand-swipe manual card imprinters.  The new board game version is training people to use debit cards.  And, MasterCard and Visa are coincidently spending millions to train debit card holders to insist that retailers process the cards at the much higher, non-fixed fee credit card rates

[commentary: WayTooHigh.com]

“Examine Credit Card Reward Offers Carefully (The Wilmington, Del. News Journal)

Excerpt [click here to read article]

Rewards cards aren’t free,” said Emily Davidson, a credit card expert at Credit.com. “Credit card marketers are very, very smart… They make a lot of money just by having you use the card.”

Credit card companies collect interchange fees from merchants every time a card is used, so card issuers profit even when consumers pay the cards off in full each month, Davidson explains.

Message to Brad Pitt: Did you Know Visa and MasterCard and it’s Member Banks May Profit From Your Rebuild New Orleans Fundraiser?

In the spirit of the holiday season, the news that Brad Pitt is leading a campaign to help raise vital funding to rebuild the Ninth Ward in New Orleans is welcomed news.  The actor is calling on all Americans to support the families of New Orleans.

See website for more info: MakeItRightNoLA.org

According to the Dec 3rd PRNewswire release, Brad Pitt and residents of the Lower 9th Ward of New Orleans launched a national fund-raising campaign to help the city recover from the lasting devastation caused by Hurricane Katrina, starting with the Lower 9th Ward.  The project’s first initiative is to build 150 affordable and sustainable homes in an area leveled by Katrina.

While this is such a vital project, we wonder whether Mr. Pitt and the entire group of contributors know that Visa, MasterCard and its member banks are also playing a key role as well?   The website and recent news articles (ex: NY Daily News) explained that “there is no minimum” and “no donation is too small”.   If a group of children wanted to each donate 50-cents, 25-cents for even a nickle, but use their parent’s credit card, the only recipient will likely be Visa, MasterCard and its member banks.  Unlike the American Red Cross, for instance, which on its website requires a five-dollar minimum donation [which is in violation of most merchant card agreements], this group has no posted minimum.  With minimum and a multitude of other electronic payment interchange fees, it’s anyone’s guess what the actual cost per transaction will be.  One thing is certain, those “no donation is too small” messages will transfer the much needed contributions right to the financial institutions, Visa and MasterCard when their cards are used to donate.

Either way, this is such an important cause.  To donate, click here.  Consider sending a check, and yes, there are no interchange fees when you use paper, rather than plastic.

The Really Price-less MasterCard Holiday Promotion Debit Card Holder’s Can’t Enter

We’ve written in the past about MasterCard’s sweepstakes scheme.  It’s back.  Same trick, just different name. 

This time you can “win two identical gifts in the MasterCard^® Joy of Giving Sweepstakes.  Every time you … use your MasterCard^® card between 11/1/07 – 1/2/08, you’ll be entered for a chance to win.

In big print, MasterCard brazenly explains that the sweepstakes is for “two identical prizes and two times the joy” if you win the two identical gifts in the MasterCard^® Joy of Giving Sweepstakes.  But, don’t even think about using your PIN-based debit card!   PIN-based & international transactions are ineligible.

Here’s the scheme: even though MasterCard [and Visa] have ocean-sized marketing, advertising and public relations campaigns promoting their PIN-based debit cards, just make sure not to use it!  Oh, you can use it, but you must insist that the friendly retailers’ sales clerks – already crazed with holiday shoppers – process your payment at the much higher credit card signature interchange fee rate.  It’s just the press of a button on the electronic card terminal, and it’s not that you then get anything special.  Your funds are still withdrawn from your bank account nearly as quickly.  The threat of fraud is minimized and the card associations’ member banks reap the much higher interchange revenues and get your money extra fast.

See the following link for the fine print [official rules] from this holiday sweepstakes.  We have enlarged it for your easy understanding:

NO PURCHASE NECESSARY. Void where prohibited. Restrictions apply.  PIN-based & international transactions ineligible.

We wonder how many cardholders actually recognize that when they use their debit card, they are ineligible to participate?  Then again, since lotteries and sweepstakes were designed for people who weren’t good at math, it probably won’t matter anyway.  If the card associations held such equal value for their debit card products as they do for signature credit cards, why the discriminatory distinction?  Unless, oh yes, they make more money when they condition debit card holders to force merchants to process the cards at the much higher credit card rate.

This is about as scheming as were the recent Visa TV commercials and its attempt at Pavlovian-training cardholders not to use cash.  They explain it slows down the cashiers line, ruins the fun of shopping and makes you feel inferior as everyone behind you in line gets really, really annoyed with you.  Just watch the commercials to see for yourself – see link.

[Commentary: WayTooHigh.com]