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]

“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]

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]

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

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?

Will Visa USA’s “Consumer Education” Tool be Silenced During Their IPO?

Americans for Consumer Education and Competition, Visa USA’s PR and advocacy machine, which “has the financial support of Visa USA” has been quiet of late. 

Normally that are countering our comments and issuing press releasesthat taunt millions of merchants which accept Visa’s network of electronic payment cards.  They explain how helpful debit cards are and how it helps train teens about conserving money.  However, we wonder whether Visa’s Washington D.C.-based tool will pull up tent and move on, as their source of funding is required to lay low during their planned IPO period?   When industry experts begin to question why any investor would want to purchase equity in a company that faces possible insolvency due to their pending litigation, the company can be voiceless.  One of their most comical press releases appeared right after our first class-action complaint in 2005.  This one was adorable: they suggested that our litigation would force consumers to pay more. Instead, over the years, the member banks have vastly raised their rates and today we are paying $40 billion in hidden interchange fees each year.  They failed to mention that while their release provoked the courage to demand that consumers need efficiency and choice, Visa is the giant monster which, along with MasterCard control, 80% of the total electronic payment network and the only thing that is efficient is how easily they can fix prices and practice anti-competitive illegal maneuvering to enrich their pockets.

Also notice how convenient it is for the giant card association to be wedged in the midst of a “quiet period” imposed by the Securities and Exchange Commission.  Visa will be unable to comment when the EU Fair Trade ruling is announced within the next few weeks.  They will also have to be silent as more and more merchants question the foundation of the interchange fees.  They will have to be silent as motorists ask why Visa is reaping windfall profits for its member banks during our economic energy crisis.

[Background: When The Bill Comes Due,” Businessweek]

[commentary: WayTooHigh.com]