“EU’s Kroes Warns Banks on Payments” (via AP)

December 7, 2007

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

December 6, 2007

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

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?