The magnifying attention to what we assert is illegal price-fixing by Visa, MasterCard and its member banks is gaining concentrated global attention.
After a recent Wall Street Journal commentary (Credit-Card Wars,” Review & Outlook, March 29) that was favorable to one of the publication’s largest advertising categories – financial services – we anticipated a monstrously loud examination from retailers and the public. Today it happened.
There were four letters published in Thursday’s WSJ “Letters to the Editor” section. Our guess is that many more did not make the cut either, including ours (see below). Then again, we already had one published on Jan 10th. See link. For an overview of today’s response and our letters, see below.
Merchants Must Submit To MasterCard’s Power
WSJ, January 10, 2008; Page A13
The European Union has found, again, that interchange fees charged by MasterCard to merchants are fixed at anticompetitive levels. Instead of recognizing that the nearly $40 billion annual hidden tax on merchants and consumers is based on illegal price-fixing, Joshua Peirez of MasterCard Worldwide hauls out the usual replies (“EU Killing of Interchange Fees Won’t Help Customers,” Letters, Dec. 28).
The fact is that consumers, the marketplace and technology, not interchange fees, are what force innovations within the electronic-payment network. The actual cost of 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 anticompetitive price-fixing corrupts its understanding of Economics 101, where the marketplace controls competition, not a board of directors who stand accused of illegal price-fixing.
President and Chief Executive
(Mr. Goldstone is the lead plaintiff in merchant-interchange litigation against Visa, MasterCard and leading member banks.)
“Are Credit-Card Fees Fair, to Whom, and How Best to Set Them?” LETTERS/EXCERPT:
Interchange fees in the U.S. are far higher than those in other western countries. Unfortunately, a market solution is not currently possible because of the credit-card network rules that insulate interchange fees from market discipline. Some credit cards (those with lots of rewards points) cost merchants twice as much as others.
In a normal, free market, we would expect to see these cards priced differently. Credit-card networks, however, forbid merchants to charge more for credit cards than for other, cheaper payment methods, to charge different prices for different card brands or cards within a brand, to accept only certain cards within a brand, or to accept cards only at certain locations and for certain transactions.
Innovation and competition cannot push down interchange rates until the card networks’ artificial constraints on the market are banned.
Adam J. Levitin
Associate Professor of Law
Georgetown University Law Center
Your editorial comes to the conclusion that soaring Visa and MasterCard “interchange” fees that cost merchants and consumers more than $35 billion each year are no big deal because “retailers have options to avoid the fees.”
You say merchants can offer a cash discount. In fact, Visa and MasterCard rules make it almost impossible for anyone but gas stations to post both cash and credit prices. And even if they didn’t, the card companies’ systems don’t tell the merchant how much interchange is being charged at the time of purchase, making it impossible to calculate how much of a discount to offer.
You also claim that large chains negotiate lower fees. There are lower-rate categories for a few large merchants based on dollar volume, but Visa and MasterCard refuse to negotiate these rates and impose them on a take-it-or-leave-it basis just as they do for smaller merchants.
Finally, with Visa and MasterCard controlling more than 80% of the market, the question of competition isn’t about other cards or PayPal. The issue is that the thousands of banks issuing Visa and MasterCard cards won’t compete to lower interchange rates. Instead, they have historically come together and agreed to all charge the same high fee for each specific type of card. As we have testified before the House and Senate Judiciary Committees, that is a blatant violation of federal antitrust law.
Visa/MasterCard rules effectively require that billions of dollars in interchange costs be passed along to consumers — a hidden credit-card fee of more than $350 a year — yet most families don’t even realize their pockets are being picked. During the shaky financial times you note, what better way to help the economy than to bring the greed of the card companies under control?
President and CEO
National Retail Federation
One important point to merchants that was not developed in the article: It is not the “basic” set of fees for accepting charge cards that many of us take issue with. What aggravates so many merchants and service providers is the fee surcharges that are unilaterally imposed upon merchants for accepting certain types of credit cards most often associated with the multitude of rewards programs so widely advertised.
How do the likes of Capital One so generously offer the merchandise, discounts, and cash back without losing money? They attach a surcharge to these cards over and above what the merchant expects to pay for accepting these credit cards. The merchant must pay the extra fee. Merchants have no control over the surcharge amount which they are charged, so the card issuers can be ever more generous to the card holder at the expense of the merchant.
Bill Gardella, Jr.
Credit-card fees are an ever growing expense for all retailers. Credit-card fraud is rampant. Consumers are now starting to default on their credit-card debt the same way they’ve defaulted on mortgages. Your argument that if it ain’t broke, don’t fix it, doesn’t hold here. Would you have said the same thing about subprime mortgages two years ago? Government should be monitoring this ever expensive and important industry.
Our prevous letter to the WSJ didn’t make the cut, but, here’s a copy in response to a WSJ article.
Dear Editor (drafted, Feb 29), There’s more to Eric Felten’s “the burden of gratuitous gratuities” (Weekend Journal, Feb 29) than just that flaunty tipping jar at Starbucks. Most consumers don’t know that when they use a credit or debit card to fund their daily fix of java, it adds to a very hefty tip for Visa, MasterCard and its thousands of member banks that make up their cartel. As Starbucks attunes away from its financial miscues, a giant cost savings would be to return to cash to save consumers from the merchant interchange fees. Each year, electronic payment interchange fees – including those micro-payments of a buck or two bestow nearly $40 billion in cash to the banks. These rich fees were once cost-based and designed for clearing those manual credit card imprinter carbon copy transactions on the Visa and MasterCard network. Today, the lack of competition (Visa and MasterCard own nearly 80% of the market) and the unbridled collusion forces the question: why are these obsolete fees still in force?
Technology and innovations enable instant, automated and efficient settlements that no longer warrant these tips to the banks
Co-Editor – WayTooHigh.com – The Credit Card Interchange Report Excerpts from The Wall Street Journal, April 3, 2008