“The Credit-Card Fee Market Isn’t Working” (via WSJ)

Click here to read the April 8th Wall Street Journal “Letter to the editor” from Rep. John Conyers (D., Mich.), Chairman House Judiciary Committee and Rep. Chris Cannon (R., Utah), Ranking Member House Judiciary Subcommittee on Commercial and Administrative Law.

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In the Journal’s March 29 editorial, “Credit-Card Wars,” you note that, “as consumers we’d like to see interchange fees come down too, but through market innovation and competition, not Congressional fiat.” We agree. That’s why we introduced the bipartisan Credit Card Fair Fee Act: It facilitates direct negotiations between merchants and the credit card industry on interchange fees.

This approach is necessary because of concerns about coordinated price fixing among issuers leading to less competition and higher rates. For example, Visa has increased the average interchange rate 17% (26 basis points) in recent years despite dramatically improved processing technology and rapidly rising card volume. As the Journal notes, “Economies of scale should be driving [interchange] fees down, as in most other service-fee industries.”

In fact, Americans pay nearly three times as much on average as Europeans in credit-card interchange fees for the same set of services — nearly 2% of every retail purchase. This amounts to nearly $36 billion imposed on consumers through higher retail prices. And the interchange fee is the largest credit-card fee of all — dwarfing credit-card late fees, over-the-limit fees, balance transfer fees, annual fees, inactivity fees, penalty interest fees, and even ATM bank fees.

Yet the editorial says the market will ride to the rescue and bring down excessive credit-card interchange fees. That is unlikely unless there are negotiations and proceedings as set forth in our legislation. In an economy in which, as the Journal notes, credit transactions are now king and cash has been dethroned, how can the vast majority of merchants turn down plastic from the two major credit-card companies, who control approximately 80% of the market?

We introduced the Credit Card Fair Fee Act to create an open and transparent environment that doesn’t exist today, one that will not only spur the major credit-card companies to negotiate fairly on interchange but also to provide the opening for lower-cost interchange credit-card brands. Our bill would lead to competitive market-based interchange rates and terms.

Rep. John Conyers (D., Mich.)
Chairman
House Judiciary Committee

Rep. Chris Cannon (R., Utah)
Ranking Member
House Judiciary Subcommittee on Commercial and Administrative Law
Washington

Riddle: What do Newspapers, Photographic Film and Interchange Fees Have in Common?

If you are a regular reader of WayTooHigh.com, you already know the answer to what do newspapers, photographic film and interchange fees have in common? 

During last week’s International Photo Marketing Association convention, one speaker explained that mainstream media has been devastated by technological changes, where the Internet and social networking groups are quickly replacing the need for print editions of newspapers.  He explained that “newspapers don’t have the ability to adapt” and that “newspapers aren’t dying, it’s aging readership is.”  They explained that electronic storage is the greatest example of deflation; hardware that one costs in the millions is today just a few hundred or less dollars. 

 Technology has also impacted other industries, like the photographic film industry, which we personally know about.  Our volume of film developing has disappeared due to the advent of digital imaging. today, our entire business is digital.

 And, another segment that should have experienced similar changes is the electronic payment industry. Retailers once using manual credit card imprinters are mostly swiping cards super-fast and super-efficiently.  Today, the cost for an electronic transaction is a fractional amount from when the four-party payment system had to manually clear each charge. Yet, our interchange fees have experience a degree of inflation that can only be caused when a cartel is in charge of pricing.

  

 Want to know more about lead plaintiff ScanMyPhotos.com?  Click here and read their daily blog: Tales from the World of Photo Scanning

Twilight Zone: The Movie, Visa and MasterCard Style

Do you remember the segment in the 1983 film, The Twilight Zone where a person befriends a mysterious 10-year-old boy and ends up trapped along with his relatives in an alternate reality created by the boy’s imagination?  To us, that is how MasterCard and Visa operate. People are frightened to call attention to the two giant credit card associations’ collusive price fixing schemes.  There are dozens of class-action law suits, all which followed after we initiated the first updated case in May 2005, but there are millions of other stories too. 

Because nearly every merchant, non-profit and entrepreneur across the globe is beholden to Visa and MasterCard and its 80% market power, many are silent on what is a nearly $40-billion annual hidden tax. 

WayTooHigh.com – The Credit Card Interchange Report has been filing news and commentary updates for nearly three years and are pleased to have such broad-based readership – beyond the defendants and their high-powered advisors. 

But, how many other businesses were brave enough to do what 30 Minute Photos Etc. [ScanMyPhotos.com] did: actually call and email Visa and MasterCard and ask them to rescind their fees [see profile]?  Because they were non-responsive, they now face a multi-billion dollar antitrust suit that, according to them could cause both card association’s to become “insolvent.”  Not to fret, as the banks would never let that happen.

When we launched our litigation, the banks appeared much more stable, but over the years, they have paid out billions from their misadventures and executive mismanagement decisions.  When a single trader can cause more than $7 billion in losses, our suit is looking less weighty.  But, we long knew that we were well inside the Twilight Zone when we decided to stand up to the banks and their payment card pricing schemes.

Thanks Reuters, We Too think Visa’s IPO is in Question

Welcome to our growing number of daily readers around the globe. 

While our company’s blog site [Tales from the World of Photo Scanning] enjoys readership around the country, WayooHigh.com with its nearly three-years of news and commentary updates on Visa, MasterCard and its member banks’ schemes is read internationally.

Today’s Reuters story on Visa’s IPO follows our WayTooHigh.com posting after the European market crash earlier this week.  We too think the Visa IPO may be in question. 

Following the presentation to the International Consumer Electronics Show on Jan 8th, next week in Las Vegas, for the International Photo Marketing Association, we again will be addressing a major industry. This time, talking on topics about innovation and public relations.  We will again look forward to hearing more stories from people also impacted by the credit card cartel’s market power as they too are forced to fund the banks’ other fiscal misadventures. 

The photo industry intemiately understands how technology and innovations has helped to lower costs and boost savings, while the credit card associations still maintain nearly 100 separate fees which should, effectively cost just pennies per transaction, but instead grab a share of each total charge for most credit card transactions.

Another Reason Why The Banks Interchange Fee Should Be Zero

repost.

The National Association of Convenience Stores magazine (July 2005) reported that “interchange fees arguably are meant to cover the technology cost of account processing and the risk taken by the issuing bank that the credit will not be repaid. It is no secret that technology costs continue to fall while processing power increases dramatically.”

The previous posting addresses the risk factor, this column focuses on technology.

As well-known entrepreneurs, Mitch Goldstone and Carl Berman, lead plaintiffs in the antitrust litigation against Visa, MasterCard and member banks also co-edit The Credit Card Interchange Report – WayTooHigh.com. This column provides a real-life experience to understand why Visa and MasterCard may be forced to disband its merchant interchange charges.

The nationally recognized business leaders operate an online boutique photo service (30minphotos.com) which recently created an entirely new business model for preserving generations of photos.  The company previously charged $5.00 to produce one high-resolution digital scan from a single photo; the process would take several minutes. Today, their ScanMyPhotos.com service scans 150 photos of any size — from wallets to 11×17 enlargements in just one minute. The charge is $49.95 for 1,000 photos; an entire shoe box of pictures is scanned within minutes and mailed back the same day for under 5-cents per print.  They even launched “15-Minute Photo Scanning, or it’s free. see link.

This same math applies to the credit card associations. With technology advancing at lighting-fast speed, each few months yields entirely new cost-saving techniques, yet for banking card transactions the fees keep rising?

Just one decade ago when merchants used bulky non-electronic credit card imprinters, the multi-page carbon forms cost a great deal and had to be mailed for processing. This took several days and incurred costly clearing and processing fees, which was why the interchange fees were initially established; it was cost-based.

Today, just as how the cost for digitally preserving photos was cut by Goldstone and Berman from $5 to 5-cents, so too have the costs for banks to process merchant payments. Yet, the latter service continues to face huge, unjustified fee increases.

Visa and MasterCard can learn a great deal from their customers like Goldstone and Berman. Many business services and products share similar cost-savings to lower rates while enhancing the benefits.

[source: WayTooHigh.com]

If Writing Checks is Free and Processing Checks is Free, Shouldn’t There Also be No Interchange Fee Too?

Have you ever seen those advertisements for banks’ free checking offers?

Several offer check writing with no monthly maintenance fees or charges to bank at ATM’s, online and by phone. With no minimum requirement, Bank of America, for example, offers free online banking with free bill paying and a free Bank of America Visa® Check Card with Total Security Protection® and Photo Security® . The website explains that it is all free.

When you write a check, there is zero interchange fee, there is no charge to the consumer or retailer who accepts the check, yet we all know how costly and the amount of labor required to process and clear checks.Citibank even offers free checking with direct deposit and your first order of checks are free too.There is even no charge for Citibank ATM transactions and no charge on non-Citibank ATM transactions. The bank provides programs for unlimited free check writing.

How about all these free perks from Wachovia Bank, N.A. and its no-strings attached free checking. It looks like everything is free. The bank has “re-invented its personal free checking account to better meet consumer needs. Extra Free Checking requires no minimum balance, has no monthly service fee, and unlike many banks’ free checking accounts, does not require direct deposit. It also comes with the Visa Extras debit rewards program and Free Online BillPay.” Some of the features of the Wachovia “extra free checking account” include: no minimum balance, no monthly service fee, unlimited check writing, no direct deposit required…, free online banking and online BillPay, free check card with Visa Extras rewards program, unlimited visits to Wachovia financial centers, Wachovia’s automated phone service, Wachovia ATMs, plus access to SouthTrust ATMs to get cash or check balances with no fees.

Bank One Net Checking® provides no fees for transactions, withdrawals, bill payments or balance inquiries, unlimited check-writing, convenient use of ATM, Direct Deposit or Bank-by-mail, make withdrawals at Bank One® Money Access Center® ATMs for no fee, unlimited transactions with no fee for withdrawals and balance inquiries at Bank One® Money Access Center® ATMs, by phone or when you make purchases with The One® Business Card SM and you can use its direct deposit and bank-by-mail services with no transaction fees.

The point is that there are no “points,” no fees, no charges, no costs, nothing. Yet, credit card transactions face supracompetitive interchange fees which are a hidden tax on consumers.

(commentary: WayTooHigh.com)

Background on credit card interchange collective price fixing antitrust litigation

Interchange fees were originally regulated, audited and designed to pay for the cost of transferring money from buyers to sellers. It was designed to balance the cost of transferring money, quickly, efficiently and at a low cost. But, in reality the rates only rise. There is no economic justification for these anti-competitive fees. This is a mature network that is highly inefficient and is a hidden tax that is affecting millions of businesses and consumers. The Interchange rates have increased 85% since 1998. There was no Interchange fee prior to the 1990’s and no fee for PIN debit cards; think of the ATM machines – initially there was no transaction fee, just like with writing checks. Electronic transactions inherently should cost less just because it?s automatic and more efficient.Mitch Goldstone and Carl Berman, founders of “WayTooHigh.com” operate The Credit Card Interchange Blog to provide an informational tool with regular updates. WayTooHigh.com suggests that the friction between banks vs. Merchants / consumers is about to explode; the credit card associations operate in an anti-competitive market power over merchants. Price fixing is illegal and most merchants have little ability to negotiate with Visa and MasterCard for lower interchange fees.

Did you know that the card-issuing banks that control Visa and MasterCard have the ability to raise interchange fees as high as they want and there is no market force that restrains then from doing so? As merchants and consumers begin to understand and learn about these interchange fees, they too will be better informed.

 

 

 Want to know more about lead plaintiff ScanMyPhotos.com?  Click here and read their daily blog: Tales from the World of Photo Scanning

Banks Benefit When Oil Surges

Today’s front page Wall Street Journal profile on the impact of $100.00 a barrel oil omitted one of the most prominent beneficiaries from surging oil prices – the banks, along with Visa and MasterCard.

When you view the Olympics next summer and see all those friendly Visa advertisements connected with the credit card company’s worldwide sponsorship, remember that they are also part of a giant cartel that is profiteering from our global economic energy crisis. 

With record prices at the pump, more motorists are forced to charge for each fill up; they simply do not have enough cash.  At the service stations, each time a motorist swipes their credit card, a fee based on the total cost is assessed in interchange costs.  As gas prices rise, so to the windfall profits that the credit card associations’ member banks reap.

[commentary: WayTooHigh.com]

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]

“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.