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].