“Peer Review: Merchants Pay Fees for Sales That Use Plastic” (StarTribune.com)

January 24, 2008

Thanks to the Star Tribune (Jan 24) and their article on debit vs. credit cards.  According to the paper (and we agree), “[y]ou have heard correctly: Merchants pay fees when you use your plastic for purchases. Those charges are called “interchange fees,” although there may be some fees with other names built in as well. The system is fairly complicated, but the fact is that if you spend $100 using plastic when shopping, the merchant likely will see only $98 or $99 of it. Credit-card and debit signature transactions typically cost merchants between 1 percent and 2 percent of the purchase amount in fees, depending on the type of card and the banks involved.”

Click here to view the entire article.

“Credit or Debit? It Depends Upon Whom You Ask” (The Patriot-News)

January 13, 2008

Reporter Sharon Smith, from The Patriot-News, has a comprehensive article in the Sunday, Jan 13th edition about the difference between debit and credit cards. She mentions the contests and games banks (Visa and MasterCard) play to entice cardholders to use their debit cards as signature credit cards, so retailers are forced to pay more.  What is missing is the explanation that ultimately consumers end up paying more, as someone has to cover the higher signature-based interchange fee. More to the point, the larger question is why is there such a significant spread between the two services? 

We have dozens of previous commentaries on this scheme and how it impacts retailers and consumers. 

[Click here to view the article]

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

November 30, 2007

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

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

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

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