You just have to watch this how-to video. The key facts about illegal antitrust price-fixing are omitted, as are the reasons why merchant interchange fees in the U.S. are upwards of six-times what other industrialized nations pay. Remember, this video and the organization promoting it is funded by the banks and Visa and MasterCard.
The problem is that few understand what these fees are; it is a hidden tax on consumers – amounting to upwards of $48 billion in anticompetitive charges each year. As proof, since this video was posted, only about 450 people viewed it, which my guess was largely from those who produced it.
The credit card interchange fee is the biggest credit card fee you’ve never heard of. Nearly $2 of every $100 American consumers spend using credit cards go directly to the credit card industry through the interchange fee.
In 2007 alone, America consumers paid over $42 billion in credit card interchange fees. Even consumers who don’t use plastic pay more through higher prices.
And the credit card interchange fee is set in secret – consumers don’t know they’re paying it through higher retail prices. Interchange fees have risen a staggering 133% since 2001.
A rare bi-partisan consensus has emerged: HR 5546/S 3086, The Credit Card Fair Fee Act which stops the price-fixing by the credit card industry and uses a transparent market-based process.
Two of the presidential candidates jumped into the nation’s economic energy crisis today by proposing a “gas tax holiday” to save motorists money.
Senator Barack Obama, was smart and chose not to side with Senator’s Clinton and McCain.And, if the presidential hopeful really want to make an impact, rather than just reducing the record prices at the pumps by temporarily lowering taxes, he should demand that Visa and MasterCard immediately remove their merchant interchange fees at all service stations.Just look at both card association’s record earnings this week [28% quarterly increase for Visa and more than doubling for MasterCard] to understand why this is a national imperative. There is a reason Visa and MasterCard’s stocks are soaring – windfall profiteering at the pumps
The argument that American’s are entering the peak driving season, and thus will increase demand on prices is wrong.Motorists are driving less, and getting rid of their gas guzzling vehicles in exchange for more economical automobiles. Even at ScanMyPhotos.com, we are providing free gas cards to help soften the effects from consumers driving less. Last week, The Los Angeles Times and the Associated Press reported on our campaign for providing free gas.
So far, none of the presidential candidates have pointed fingers at Visa and MasterCard and its member banks for their windfall profiteering from charging upwards of $2.50 in credit card interchange fees every time a motorist fills-up with a credit card.
Click here to read the article reported by Jennifer Hewlett in the Herald Ledger on April 7.
Excerpt:
Credit card interchange fees are “killing” convenience stores that sell gasoline, says Roth Bullock, who owns 16 such stores in Kentucky and Indiana. Since 2000, 12 to 14 large companies operating convenience stores in Kentucky have gone bankrupt, and credit card fees are a big part of the reason, he said.
For every dollar spent on gasoline using a credit card, about 2 cents goes to the credit card company. Credit card interchange fees have risen dramatically in the past several years, and more and more people are using credit cards, as well as debit cards, which also carry fees, to pay for gas.
“It’s the second-largest expense we have besides payroll. It is double what utilities are,” said Bullock, owner of Bullock Oil Co., which operates Cowboy’s Food Stores in Kentucky and Indiana.
“Richard Maxedon, executive director of the Kentucky Petroleum Marketers Association, said that many small gasoline retailers in Kentucky are selling out to larger operators because they can’t afford to stay in business any longer, in part because of card fees.
Click here to read the March 22 article by Alan Wechsler in the Times Union.
[Of note is that the bank’s along with Visa and MasterCard’s proxy, Trish Wexler at their Electronic Payments Coalition advocacy group explained in the article that “Credit card companies say government has no right to get involved.” This probably was the same argument the robber barons voiced in the 1800s when the railroad owners forced farmers to pay whatever they demanded to transport their goods to market. Interchange fees are just as antiquated and were designed a generation ago to process four-party payments over the Visa and MasterCard network, back when we merchants used manual credit card imprinters and carbon copy receipts. As for Ms. Wexler, this is why we have the Sherman Antitrust Act, because Washington listened. The goal of WayTooHigh.com – The Credit Card Interchange Report is to derail the banks’ arrogance.]
Excerpt:
“There’s growing retailer resentment over the fees Visa and MasterCard charge for using their cards. More than 40 years after the cards were first introduced, nine states, including New York, along with the federal government, are pushing for laws to control the power credit card companies have over businesses.”
“It’s really out of control,” said Mallory Duncan, senior vice president and general counsel at the National Retail Federation, a trade group in Washington, D.C. “The rates keep going up, the terms are horrendous and it’s a cost that retailers and their customers have to bear.”
Click here to read the Andrew Snyder article in Today’s Financial News
Excerpt:
“…Instead, Washington wants to uncover the secretive fees most consumers know nothing about. After all, these “interchange fees,” which are the fees credit card companies charge vendors for the ability to accept and process their cards, cost Americans (even those that pay with cash) more than $42 billion last year.”
“When you and I complain to our elected representatives, chances are, little action will be taken as a result of it. But when political and economic powerhouses like Wal-MartAllen-Questrom-Q-A and Target pick up the phone, Capitol Hill starts to move. That is why MasterCard shareholders and future Visa shareholders need to pay attention. If Washington (or should I say Wal-Mart and Target) gets its way, credit card industry revenues will be slashed.”
After reading the Visa, Inc. IPO Risk Factors, we wonder whether investors will actually stop by and talk with the millions of merchants, companies and organizations which are forced to accept MasterCard and Visa – the two control a whopping 80% market share of all electronic payment processing solutions. For us, the key word is “Interchange” and the below thousand plus news and commentary postings by WayTooHigh.com provides just the start.
Non eco-friendly relics from last century, like photographic film and bulky Yellow Page directories, in our opinion, share something in common with Visa and MasterCard’s interchange fee structure.
Even worse, the billions of bank-mailed credit card solicitation junk-mail sent each year fill up land fills along with billions of plastic charge cards cast-away. Whether it is Interchange fees, photographic film or Yellow Page print directories, in our opinion, they are all obsolete in today’s high-tech society.
The difference is that consumers and businesses can quickly adopt. Most have switched from film too digital, and many are switching from print to Internet advertising [Click here for an overview of phone book giant R.H. Donnelley’s quandary]. The manufacturers adjusted too. Many directory listing companies are offering online solutions.
And, in our case, retailers like us modified the entire photo business model. Entrepreneurs are switching from print Yellow Page advertising to Google and other online directory listings. For ScanMyPhotos.com, we were forced to change, and fast. AT&T Real Yellow Pages “forgot” [they literally forget] to run one of our display ads last summer in Central Orange County, California. These are the legally contracted ads we place every year and were an essential marketing tool for us.Subsequently, in preparing for our new Blog: YellowPage the Dinosaur, we contacted several others in our industry and they share our opinion of the Yellow Page’s demise. [website: blog.yellowdinosaur.net].As the phone stopped ringing from local customers, we were fortunate that ScanMyPhotos.com also relies on national customers, our website and Blog: Tales from the World of Photo Scanning to spark traffic and new customers. For complete information on our quagmire see our new Blog: YellowPage the Dinosaur. Our Yellow Page story was just profiled in B to B Magazine, but we are still out the more than one-hundred thousand dollars from lost revenues . Even one of the online directory companies picked up on our predicament and has the ScanMyPhotos.com new customer profile on their site.What does this have to do with our interchange fee battle?
As technology and efficiencies caused oceanic-sized changes to the Yellow Pages and film businesses, Interchange fees continued to rise. Interchange fees were designed to be cost-based to cover the four-party payment network when we used those antiquated manual credit card imprinters and thick stack of carbon-copy receipts. Unlike with film and the Yellow Pages, merchants cannot easily switch to other electronic payment networks. The 80% market power exerted by Visa and MasterCard is insurmountable.
Like most merchants, doctors offices and millions of all-sized companies, we are forced to accept Visa and MasterCard – pay their non cost-based rates [$40 billion annually] and even their whimsical fee adjustments. Another fee adjustment was recently announced, but merchants won’t know the new rates until after the Visa IPO occurs and not until the day the new rates are imposed on April 1st – April Fool’s Day. These unchallenged and unfair fees are, after all, how we got started with our antitrust litigation in the first place. [Click here to read 2005 The Wall Street Journal article by Wendy Bounds and Robin Sidel]. Back in 2005, both Visa and MasterCard collectively and “coincidentally” were united in sharing the announcement that their signature affinity cardholder interchange fees were rising. This action caused merchants to also be taken on a ride when cardholders paid with their plastic frequent-flier cards. And, they are at it again, with a planned April 1 new rate adjustment.Whether it is film or yellow page directories, we modified our business model. But, when it comes to gallant, anti-competitive, cartel price-fixing, retailers are unable to modify our practices. Photographic film’s demise caused havoc on many business. The Yellow Page ad that AT&T forgot to run for us equally had a detrimental impact.However, with Interchange fees we, like millions of other merchants are all beholden to Visa and MasterCard. The day we stop accepting Visa and MasterCard is the day we are forced to close down, yet we are forced to pay whatever rates they impose.————————————————————————————-
WASHINGTON DC – Congressman Chris Cannon (R-UT), along with Judiciary Chairman John Conyers (D-MI), today introduced the “Credit Card Fair Fee Act” (HR 5546) to address the anti-competitive aspects of credit card interchange fees and save American consumers and American families billions every year.
Upon introducing this legislation, Congressman Cannon said, “Free market capitalism is the most successful economic system the world has ever witnessed. Bedrock principles of that system include transparency and competition. The current system of setting fees that merchants pay for credit card transactions is anti-competitive and secretive. This bill does not set prices. Instead, it would require that fees be set in a transparent manner so other companies can compete for business and consumers would not pay artificially high rates.”
Cannon continued, “In the end, credit card companies should set whatever fees the market will tolerate. This bill is a win for consumers, for retailers, and for the credit card industry which will benefit from competition.” In closing, Congressman Cannon said, “This is a complicated issue. This bill may not be the final answer, but society’s interest in this is so great that we hope all interested parties will come to the table.”
Each year, consumers pay billions of dollars in hidden fees that never appear on their monthly statements. Those fees are called “Interchange fees.” Credit card companies and their banks charge them to store owners, businesses, or anyone else anytime a credit card is used to make a purchase. As much as $2 of every $100 you spend goes to interchange companies or the banks behind the card. Last year, more than $36 billion in interchange fees were collected, up 17 percent from 2005 and 117 percent since 2001.
The average American family is now paying more than $300 a year in credit card interchange fees. Retailers are then pass along the credit card interchange fee to consumers in the form of higher prices. The credit card interchange fee increases the price of everything consumers buy, even those who don’t use plastic and choose instead to pay for their purchases in cash or by check because retailers are not allowed to offer lower prices for cash or debit transactions because of their agreements with Visa and Mastercard.
For example, with the price of gas at more than $3 a gallon, credit card companies and their banks are collecting as much as 8 cents a gallon in interchange fees. Americans are paying the highest interchange fees in the world, an average of two percent, compared with less than one percent in most other industrialized countries. Credit Card fees have a complex pricing structure, which depends on the card association, the type and size of the merchant, the type of credit card and the type of transaction.
Click here to read the Carolyn Said, Feb 26th San Francisco Chronicle article about Visa’s planned IPO.
From the article, this is one of the reasons the annual $40 billion hidden tax on retailers and consumers should be close to zero. Today, most electronic payments are instant, cost-effective and high-tech, no more carbon-copy paper receipts that need to be manually cleared. Then again, think of check writing and even those processing fees are without interchange fees too. The banks will explain that limiting interchange fees in today’s modern world would be price-fixing, and they should be very familiar with that term, because that is what they are doing.
When Visa was established, the card association was without sophisticated, cost-effective computers. “card transactions were all processed on paper receipts from hand-swiped machines”.
“At one stage, there were literally gymnasiums full of unrecognized receipts people had to sort through, [i]t was an absolute nightmare.”
“Focusing on ‘digital money’ was the key to revolutionizing the card. But turning that into reality involved major negotiations.”
“Not long ago, I wrote a column explaining the difference between credit and debit, advising consumers to put the cash cards away and always use old-fashioned credit cards when shopping. Unexpected fees for PIN-based debit card transactions are just another reason to do that. Less security, but more profit. The answer is simple: easy money. First, let me explain the terms. “Debit or credit” is a misleading question. While all the plastic in your wallet looks the same, most of us carry around three different ways to pay: a regular credit card, a bank/ATM/debit/cash card that can be used with a PIN code to buy things at retail stores (PIN-debit transactions) and a bank/ATM/debit/cash card that can be used with a signed slip to buy things (signature debit). It’s the last two we’re concerned with here.”
[click here for related story on “House of Cards – consumers turn to credit cards amid the mortgage crisis]”
We’re not quite sure how to react to the news that MasterCard is lowering, that’s right, lowering certain interchange fees.
Will Visa follow along?
Does this apply only to credit cards, or are flat fee debit and PIN-based cards be accepted, and thus cost a about 50-cents for the entire interchange fee transaction?
According to Digital Transactions Magazine (Feb 21), MasterCard is promoting a new rate category to promote their electronic payment service for certain real estate transactions, such as with property managers to encourage renters to pay with plastic and get cardholders to eventually pay their utility, insurance and other bills with MasterCard.Don’t get carried away, because there are still huge windfall profits to be made by the credit card association and its member banks. The article indicated the new rate category would cost about 1.1 percent in interchange fees.Property managers should be on alert, because what once incurred no charge from cashing checks, now will come with an added interchange fee that will cost them – and thus the cardholders with a 1.1% fee. It is not as if cardholders will be more incentivized to pay their bills; their rents are fixed – what is more likely is that consumers will go further into debt and end up paying usurious finance changes when they have new balances on their cards.This is a win-win, but not for everyone.Consumers and those accepting the cards will pay more than before when no clearing fees were mandated. The winners: MasterCard and its thousands of member banks.So, what gimmick will Visa launch to top this indignation?
We have long questioned the genesis of how interchange fees are invented. Our litigation accuses MasterCard’s board of directors of illegal price-fixing to artificially set rates. But this new rate structure raises another question: what is the genesis of those new rates? How can MasterCard create another unique rate? What are the actual costs for processing rent payments versus buying a high-end Rolex watch at Cartier? Are there real differences? Why does MasterCard need a 100 page fee structure for their interchange rates. And, another question: if MasterCard could “lower” a specific rate, why not all rates? OK, and one more question: Are these rates really “lower,” when you survey the global picture, where some interchange rates are zero and others are a third of the rates mandated in the U.S.? This is just a giant shell game and one which MasterCard and its co-defendant cartel partner, Visa, are up against a growing wall of descent.
The only “real estate incentive” could be the further bloated-size of the vaults at the banks and MasterCard as they prepare to open up a new revenue source for themselves.
Let’s not forget to add Visa and MasterCard – the two giant credit card associations – to the list of those effectively profiteering from the world’s economic energy crisis.
With all the added money flooding into the banks from record energy costs and motorists paying with Visa and MasterCard’s, we can only assume they are using these windfall profits to help cover their disastrously mismanaged mortgage meltdown.
Who would have thought that Visa, MasterCard and their thousands of member banks would punish motorists to help cover their other banking misadventures?
As crude oil prices rose again to record levels (above $100 a barrel) the thousands of member banks that run the giant credit card cartels are making mint off motorists’ anguish.
It is more likely that drivers will be forced to reach for plastic, as few have enough paper currency to cover the record price to fill-up a tank of gas. This means that unprecedented profiteering is taking place again because more people are forced to use Visa and MasterCard, then pay among the highest merchant interchange fees ever.
When gas was $1.50 a gallon, just a short time ago, the service station interchange fees were significantly less. Now, with these record prices, the banks are profiteering with unparalleled greed.
Why exactly are the banks able to claim a percent from every sale, even when their costs are nearly unmoved?
Whatever happened to MasterCard’s proclamation that they would cap interchange fees at $50.00 a fill-up?
Why didn’t Visa join in the same interchange fee limit?
The top question is: If MasterCard and Visa could put a cap on merchant interchange fees at $50.00 per transaction for a gas station car fill-up, why can’t they equally provide the same rate structure for all retailers?
From today’s Los Angeles Times [C6] WaMu “No ATM cash withdrawal fees up our sleeves” advertisement, came this gem: “[h]idden fees just aren’t our thing.”
The ad is confusing and challenging to read as it’s in pink and the bottom super-tiny text is positively illegible; it’s printed with a font size that is so small, in white with a pink background.
While WaMu promotes free checking and explains they don’t like hidden fees, let’s take a look at another super large revenue source for the bank – interchange fees, which are anything but transparent and just as hidden as are the tiny restrictions clause at the bottom of the ad.
The advertisement also raises a question of if so many of their services are free, including writing checks, then why are interchange fees so costly? Even clearing checks are without charge, as there are no interchange fees to process paper checks.
As a headline, this is an eye opener, but no surprise to us. Years ago, Mitch Goldstone spent a full day with Starbucks founder, Howard Schultz during a University of Southern California Marshall School Entrepreneur event. Mr. Schultz is one of our nation’s most admired and smartest entrepreneurs.
And, that is why this headline, that Starbucks is planning to regroup and *briefly close more than 7,000 coffeeshops at 5:30 pm on Feb 26 is smart management, and a brilliant media event.
The reason is to provide a refreshing training session to the 135,000 “store partners” [employees] across the U.S. to get the famed purveyors of much more than just selling coffee back on track. [click here for company press release].
OK, you must be asking, so what does this have to do with credit cards and interchange fees? Unlike ScanMyPhotos.com, where our average Ecommerce order is more than $150.00, think about the Starbucks business model. The average order must be just a few dollars. My order is $1.85 and I pay in cash.
Think of the interchange fees on credit and debit card transactions at Starbucks for micro-payments. If a customer spends about $2.00 and uses a Visa or MasterCard-branded debit card, there is a minimum fee to Starbucks; in our case, it is about .55 cents. Even credit card transactions are costly too.
A question is: why are Starbucks Cards free from interchange fees? After all they are using an electronic payment network that costs money to print, promote and operate the card program. In the case of Visa and MasterCard, may times the issuing and acquiring banks are the same, which means the four-party electronic payment network is on par with retailers’ internal gift card programs. There must be a degree of fraud (people were recording the authorization codes on the back of the cards and wiping out the balance on cards that were later validated). The banks plastic and Starbucks plastic are very similar, yet there are no interchange fees for gift and store cards.
Another question is: what would happen if Starbucks ceased accepting credit cards? Mr. Schultz is on of the most dynamic entrepreneurs in the nation and if he did the math and reviewed the annual interchange fees, a similar conclusion could arise. Sure, it is convenient to use plastic to pay for a cup of coffee, but most people (other than those watching the silly Visa commercials [click here]), would just as easily pay with cash to help Starbucks regain it entrepreneurial and storied edge. For the larger purchases of cappuccino machines, cards could be used.
PAPER OR PLASTIC?
The banks along with Visa and MasterCard are spending millions to entice consumers to insist on plastic. Starbucks and other merchants with many small individual transactions has fallen for this gimmick. But, as Starbucks prepares to regroup, we wonder if they will also reevaluate the cost and benefit of those hefty merchant interchange fees?
But, this is not to suggest that there is competition from other sources. In our case, if ScanMyPhotos.com were to terminate our credit card payment option, we would be out of business, as much of our revenues are derived from Ecommerce transactions and much higher per ticket in-store transactions which more require the use of charge cards. The two giant credit card associations control nearly 80% of that market.
Technology and innovations are generating nationwide buzz for our super-fast photo scanning and Ecommerce digital imaging services. Now, it’s free. ScanMyPhotos.com has pioneered super-fast and affordable photo scanning, and today it is free [see link for article].
We are scanning up to 1,000 4×6″ photos without charge (pay just for S&H – $19.95) for all members of Flickr, Facebook, MySpace and Blogger because Kodak technology is that efficient [see link to Kodak.com profile].
What does this have to do with out merchant interchange battle? Everything. Unlike MasterCard and Visa and its thousands of member banks, we are taking advantage of technology to lower costs. This model makes sense because ScanMyPhotos.com is asking members of these four leading social networking sites – representing the most cutting-edge and innovative group of consumers – to post reviews on their ScanMyPhotos.com experience.
If we can provide free and super-fast photo scanning, why can’t the two leading credit card associations also adjust their fees to also reflect today’s shared technological efficiencies for super-fast electronic payments?
A publicly filed Report and Recommendation on Feb 12 from Magistrate Judge James Orenstein is recommending to Judge Gleeson that the Court deny MasterCard’s motion to dismiss the Class Plaintiffs Supplemental Complaint that challenges MasterCard’s reorganization and IPO.
[Click here to view the Report and Recommendation].
In our opinion, as Class Plaintiff, this is a significant victory as it undermines MasterCard’s legal and business strategy of attempting to avoid antitrust liability by transforming itself into a “single entity” immune from Section I of the Sherman Act.
We have written in depth on this topic ever since MasterCard launched its plan to transfer liabilities through a questionable public offering.While there are other remedies beyond overturning the MasterCard IPO, the situation is similar to those now faced by Visa Inc and its nearly identical planned IPO, which we now think could be modified to address these issues and even be deferred or rescheduled. [See Risk Factors]. We expect that yesterday’s Report and Recommendation could minimally have a materially negative impact on Visa’s IPO pricing.
Selected highlights from the Report and Recommendation
Background: In their First Consolidated Amended Class Action Complaint, filed on April 24, 2006, the merchants and trade associations that comprise the Class Plaintiffs alleged sixteen antitrust claims against a variety of networks and banks arising from those defendants’ use of fees and rules that enable the merchants to accept credit and debit cards as forms of payments for the goods and services their customers purchase.
[T]he plaintiffs allege that the IPO fundamentally altered MasterCard’s structure and operations, as well as the relationships between and among itself and the Banks, in ways that offend federal antitrust laws as well as New York State’s prohibition against fraudulent conveyances.
Before the IPO, the banks that made up the membership of the MasterCard consortium completely controlled the network: they owned all of its shares and populated its Board of Directors and other governance committees.
The plaintiffs assert that it [the IPO] was to avoid such liability that MasterCard’s banks determined to transform the consortium into a public company that would qualify as a single entity; however, in doing so, the plaintiffs contend that the banks sought only to divest themselves of enough participation in MasterCard to avoid antitrust liability, without losing their ability to engage in anti-competitive conduct. Id. 74-75. In making that allegation, they note that MasterCard publicly described one expected advantage of the IPO as being insulated against “legal and regulatory challenges involving our ownership and governance.”
The Class Plaintiffs contend that the net effect of these changes is to create the appearance but not the reality of a single entity, and thereby improperly to insulate MasterCard from Section 1 liability for what amounts to a continuation of its member banks’ continued unreasonable horizontal restraints of commerce.
I conclude that the IPO resulted in both MasterCard and the Banks making an acquisition that is properly subject to scrutiny under Section 7. First, the Banks Acquired stock in the new MasterCard entity, and that acquisition is not shielded from liability simply because it was paid for with arguably more valuable shares of the old entity. Second, MasterCard acquired assets from the Banks – namely, their shares of the old MasterCard entity and certain associated rights – and that acquisition is not shielded from liability simply because the assets can also accurately be described as MasterCard’s own stock rather than “the stock … of another person
… [T]he plaintiffs assert that the rules governing transfers and ownership of the new classes of MasterCard shares will concentrate effective control of the new entity in the defendants’ hands. Those rules ensure that the banks that were members of the old MasterCard consortium will retain a substantial economic interest – 41 percent ownership – in the new entity. Combined with ten percent ownership share guaranteed to the new MasterCard Foundation, it is impossible for outsiders to obtain a majority stake in the company. In addition, the restrictions on governance rights – including the ownership qualifications and veto powers associated with Class M shares and the limitations on voting rights available to public investors – further ensure that no outsider can gain enough power to operate MasterCard in a way that might be more competitive but less profitable for the banks.
… Given the plaintiffs’ plausible allegations about the characteristics of the relevant market and the effects of the acquisitions at issue, I conclude that the Complaint sufficiently pleads that the agreements leading to the IPO will probably result in a substantial lessening of competition. Combined with my earlier conclusion about the form of the acquisition, I further conclude that – with respect to both MasterCard’s alleged acquisition of assets from its member banks and the Banks’ acquisition of stock in MasterCard – the plaintiffs have identified, if not yet sufficiently pleaded, a viable claim under Section 7 of the Clayton Act.
We came across this threadon FlyerTalk’s online bulletin board forum about service charges at restaurants. Readers commented on how some restaurants add a service charge which patrons might not notice, and then double the tip.
When compared to the nearly $40 billion in interchange fees that Visa and MasterCard’s member banks are still able to charge, this situation is tempered, but helps draw attention to a variety of hidden fee tricks. In the case of restaurant guests, when the bill comes they can carefully review and choose whether to leave an added tip, but for all electronic payment transactions, merchants and cardholders are invisible in the process and are forced to pay what few understand. From prior postings, we asked why Visa and MasterCard have not implemented out simplified receipt solution, by printing the exact interchange fee on every receipt? Click here for more info.
Click here to read the entire FlyerTalk forum thread
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.”
Merchants already are forced to pay from upwards of one-hundred separate interchange fees. Few understand how these charges work, and even we didn’t know of one of the added chargeback programs.
30 Minute Photos Etc and our ecommerce business, ScanMyPhotos.com might have had under a dozen chargeback requests over the past 17-years. These are generated when a customer questions a specific electronic payment charge.
Just today, we received a multi-page chargeback notification from Visa USA domestic. The customer disputed a charge from early December and reported that it was a duplicate processing charge for the same order. The fact was this customer placed two separate orders for differing amounts over the span of a few days.
As a merchant, our account was immediately dinged for the full amount. A financial adjustment was made to our account as a result of the chargeback initiation. While were were offered to dispute the charge, which we did, Chase Bank USA already took the money back. Can you imagine that? Ok, we are the lead plaintiff, suing JPMorgan Chase and the other member banks, along with Visa and MasterCard for what could be multiple billions of dollars, but did they have to be so petty?
What happens when other merchants overlook those chargeback notifications? Funds could also be automatically withdrawn and if not challenged, lost. Also, what happens to the interchange fee that we initially paid? Would a disputed charge still have to incur an interchange fee?
DID YOU KNOW? If you thought the gas companies were reaping huge profits at the expense of our dependency on petroleum, know this: Soaring gas prices means that more consumers are using credit cards to pay for filling up at the pumps. The credit card interchange fee costs motorists as much as $1.50 per fill-up!
The Colorado/Wyoming Petroleum Marketers Association reports that “for every gallon of gasoline or diesel fuel sold today, as much as seven cents or more per gallon is spent in processing the credit card transaction. Credit card fees are a significant factor contributing to the price of fuel.”Credit card transaction fees paid by retailers have been increasing creating a windfall for the credit card processing company on the high cost of fuel. Because the Interchange fees are a percentage of each transaction and is accompanied by other fees that banks collect from retailers every time a credit card or debit card is used to pay for a purchase, the credit card associations’ members seem to be profiteering from our nation’s record high gas prices. As the price of fuel increases, so to do the profits to the credit card companies, yet there cost of processing the transaction is the same.
In 2003 under half of all motorists used a credit card to pay for gas, today with record fuel costs, nearly 70% of all gasoline purchases are now paid with plastic. The paper-thin margins mean that many gasoline service stations are earning less per sale than what is being recovered by the credit card associations. Due to soaring gas prices, Visa and MasterCard reap a larger profit per gallon then the retailer selling the gasoline, according to The National Association of Convenience Stores.
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.
Riddle: What’s the difference between the worldwide Internet communications network and Visa and MasterCard’s electronic payments network? $40,000,000,000 each year.
Could you imaging if the banking cartel wielded an equal market power over the Internet as they do on what today should be a very low cost four-party payment network?
We just launched a new blog site [“Tales From The World of Photo Scanning’] for ScanMyPhotos.com, our nationwide super-fast photo scanning service. The idea came after one of the nation’s more well known technology reporters paid us a four-hour visit on Saturday; we scanned more than 4,000 of his pictures.
The new blogwas his idea, but it also led to us asking this question: why is blogging free, yet electronic payment transactions cost billions? Both use a network to transmit data, but, blogging is more like writing a check, where there are no illegally-based anticompetitive fees. Sure, it is not a four-party network, but just look at Google’s stock valuation to identify how profitable providing this free service is. Technology is making everything faster, less costly and more efficient, with the exception of merchant interchange fees, of which, MasterCard recently announced yet another fee increase. Way to go MasterCard!
The National Retail Federation recenty welcomed a ruling by the European Commission that hidden fees currently charged by MasterCard to process credit card transactions in Europe – similar to those that cost U.S. shoppers $40B annually – drive up costs for consumers in violation of EC rules and must be withdrawn within six months.
“European authorities say MasterCard is double dipping in Europe, and that’s exactly what we think both MasterCard and Visa are doing here in the U.S.,” NRF Senior Vice President and General Counsel Mallory Duncan said. “Visa and MasterCard are charging billions of dollars directly to consumers for all the fees that show up on their monthly statements, then they turn around and charge billions more from the hidden credit card fees they force merchants to include in the price of merchandise.”
“These fees drive up the cost of merchandise for shoppers while delivering little if any benefit commensurate with the billions charged,” Duncan said. “It’s time for this to stop, and authorities here in the United States should take the European ruling as a signal that it’s time to bring the same relief to U.S. consumers.”
The European Commission ruled today that so-called “interchange” fees charged by MasterCard and its banks violate EC Treaty rules on restrictive business practices and “inflated the cost of card acceptance by retailers without leading to proven efficiencies.” The commission ordered MasterCard to withdraw the fees within six months or face fines equivalent to 3.5 percent of global revenues.
The commission said the fees are “not illegal as such” and stopped short of saying MasterCard could not charge any interchange fee at all. But any replacement system of fees, even if lower, would be allowed under EC rules only if MasterCard could show that it “contributes to technical and economic progress and benefits consumers.”
EC Competition Commissioner Neelie Kroes said the fees drive up costs for consumers as well as retailers.
“Consumers foot the bill as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices,” Kroes said in releasing the ruling. “The commission will accept these fees only where they are clearly fostering innovation to the benefit of all users.”
Averaging close to 2 percent in the United States, interchange is a fee Visa and MasterCard banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected more than $36B in interchange fees last year, up 17 percent from 2005 and 117 percent since 2001. This year, the amount is expected to top $40 B, or about $350 per household. Interchange is largely unknown to most consumers because Visa and MasterCard don’t disclose the fee on monthly statements and prohibit merchants from disclosing it on receipts.
MasterCard interchange rates for cross-border transactions in Europe currently range from 0.8 percent to 1.2 percent of each transaction. Visa was not addressed in today’s ruling but reached an agreement with the EC in 2002 that restricts its fees – previously averaging 1.1 percent – to a maximum of 0.7 percent. That agreement ends at the end of 2007, and the EC said today that beginning in 2008 Visa will be “responsible to ensure that its system is in full compliance with EU competition rules.”
NRF is leading retailers’ fight against soaring interchange costs in the United States, and Duncan testified before the House Judiciary Committee’s Antitrust Task Force in July that collusion between banks when setting the fees has violated U.S. antitrust law. The hearing was the second time Congress has looked at interchange practices in the past two years following a Senate Judiciary hearing on possible antitrust violations in July 2006. In addition, approximately 50 federal antitrust lawsuits against Visa, MasterCard and their member banks have been consolidated in U.S. District Court in New York and are awaiting action.
The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees – about one in five American workers – and 2006 sales of $4.7T. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. www.nrf.com
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.
Click here to view MasterCard Dec 19 news release.
If Adopted Across the EU, Decision Could Lead to Higher Cardholder Costs and Fewer Electronic Payments, and Impede the Implementation of SEPA
Waterloo, Belgium and Purchase, NY, December 19, 2007 – MasterCard Europe said that it will appeal to the European Court of First Instance today’s decision by the European Commission regarding MasterCard Europe’s default cross-border interchange fees. The Commission’s Order requires the company, among other things, to “repeal [its] Intra-EEA fallback interchange fees, as well as [its] SEPA/Intra-Eurozone interchange fees” within six months. The Order applies only to “interchange fees for MasterCard branded consumer credit and charge cards and for MasterCard or Maestro branded debit cards”.MasterCard Europe believes that it has strong grounds for its appeal. While it will comply with the Commission’s Order, the company said that it is prepared to take action so that its payment products remain competitive and continue to benefit the millions of European cardholders who use and merchants that accept MasterCard and Maestro cards.
MasterCard Europe said its decision to appeal is based on its firm conviction that market forces, not regulation, should drive key decisions such as the setting of interchange fees and retailers’ choices over which forms of payment to accept. The company also pointed to the experience in Australia, the only other jurisdiction in the world to regulate interchange fees, where consumers have ended up paying more for credit cards and receiving fewer benefits and less choice.
If left unchallenged and adopted by national regulators, the Commission’s approach would not only be bad news for consumers but a blow to investment and innovation in the European payments industry, resulting in slower implementation of the Single Euro(pean) Payments Area (“SEPA”), MasterCard Europe said today.
Commenting on the decision, Javier Perez, President, MasterCard Europe, said:
“We are disappointed that after years of review of MasterCard Europe’s transparent, default cross-border interchange fees, the Commission failed to appreciate that without a mechanism to fairly share costs among all the participants in a payment system that functions across Europe and around the globe, consumers will be hurt. Although MasterCard Europe itself does not receive any revenue from interchange, it, like all other payment systems, must balance the needs of, and costs to, both cardholders and merchants in order to remain competitive and innovative.
“The Commission has also ignored the experience in Australia where regulators forced down interchange fees, resulting in higher cardholder charges, reduced card features and benefits, less competition, and diminished investment and innovation. Moreover, there is no evidence that consumers benefited from lower merchant prices as regulators predicted. Not surprisingly, the Australian payment card business has seen slower growth since regulation was introduced.”
Given that the Commission’s Order appears to call for an even greater reduction in interchange fees than occurred in Australia, the adverse effects on European consumers could be even more severe.
Perez continued:
“Forcing drastic reductions in interchange fees across Europe could delay implementation of SEPA, as well as reduce incentives for payment institutions to expand into new domestic European payments markets. In addition, a large reduction in issuers’ revenues would force cutbacks on the necessary investments in new services and technology. This goes directly against the goal of establishing a single market for payments throughout the euro area and the European Union as a whole so that all consumers can pay for goods and services across national borders with the same ease and under the same conditions as when they make payments at home. Because we are strong supporters of SEPA, we are very concerned that the Commission’s decision casts a shadow of uncertainty over this effort and, ultimately, will hurt European competitiveness.
“Far from providing clarity, today’s decision leaves MasterCard Europe and the entire payments industry in doubt as to what interchange fees the Commission will allow.
“Europe wants to reduce reliance on cash in favour of electronic payments, which are safer, cheaper, more secure and more convenient for consumers and merchants alike. The best way to accomplish this is to allow open, transparent and efficient payment systems like MasterCard and Maestro to compete unhindered in the market,” he said.
“And, as is often the case when market forces are supplanted by regulation, it is the smaller merchant and less-well-off consumer that will be hurt the most,” he added.
MasterCard Europe has not yet received a copy of the Commission’s decision. However, based on the Order and the arguments advanced by the Commission during the proceeding, the company believes that the Commission has failed to appreciate that, in order to compete successfully with three-party systems and other forms of payment, four-party payment systems like MasterCard and Maestro need to deliver value to cardholders and merchants. This requires interchange fees or some other cost-balancing mechanism.
Perez concluded:
“While we will meet all of our legal obligations during the appeal, MasterCard Europe will take action so that its payment products continue to benefit cardholders and merchants, and remain competitive. Despite our disagreement with the decision, as we have done in the past, we will continue to seek common ground with the Commission in order to serve the interests of European consumers and merchants.”
In open, four-party systems like MasterCard and Maestro, the four parties are the cardholder and his or her bank (the “issuer”) and the merchant and its bank (the “acquirer”). Default interchange fees, which have been part of the MasterCard system for more than 40 years, have proven to be the most transparent and efficient way to balance the costs and benefits among these parties and promote a healthy, competitive and innovative payments industry.
Interchange is a small fee paid by the acquirer to the issuer, and is typically passed on as a component of the fee merchants pay for the many benefits they receive when they choose to accept payment cards. These include increased sales, fast and secure payment, and protection against fraud and cardholder default. Without interchange fees or some other balancing mechanism, cardholders would have to pay nearly all of the costs of the payment card system. MasterCard believes not only that this would be unfair but that, in the long run, it would not even be in the merchants’ best interest. This is because it would lead to greater reliance on cash and more expensive three-party system cards, like those of American Express, where the payment company acts as both issuer and acquirer and typically charges merchant fees that are higher than those of MasterCard and other four-party systems.
WayTooHigh.com commentary on today’s European Commission ruling that MasterCard’s interchange fees imposed on retailers are illegal. Visa has an exemption that runs through the end of the year.
The EU decision is yet 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 and today marks the highest number of visits to WayTooHigh.com – The Credit Card Interchange Report.
It is long past time for the networks to reduce or eliminate interchange fees in the U.S. rather than face crippling liability in U.S. courts.
Remember, nearly 100 separate merchant interchange fees in the U.S. are more than double the rates in Europe.
According to Reuters, “Europe’s credit card industry expects a landmark ruling from the European Commission on fees this week that may determine the range of cards consumers will have in their wallets in future. EU Competition Commissioner Neelie Kroes is expected to say that MasterCard … must cut the so-called interchange fee it sets on the chain of banks that allow a customer to buy goods and services outside their home state, industry officials say.”
A customer just had us [ScanMyPhotos.com] digitally preserve 1,000 photos onto a DVD while they waited. This is a very typical customer and because the payment card was identified as a “check card” we pressed the “debit” button on the electronic payment terminal and handed the person the key pad to enter their PIN number.
They paused and asked us to enter it as a credit card, even though the card was a check card. Many sales clerks would have had difficulty even differentiating between a check / debit card and a credit card – this one had hard-to-read black lettering, which is part of Visa, MasterCard and its member banks design tricks to confuse retailers into accepting the card at the much higher signature credit card rate.
As the customer requested, we reentered the transaction as a credit card, even though the funds are quickly removed from their checking account anyway. The merchant interchange charge to us was about $1.35, rather than a flat fee of about $0.25 – $0.50 if the transaction was processed as a PIN-based debit card. Note: PIN transactions are much more secure than signature card entries, yet the fees are a flat, and often much lower rate.
Eighty-five cents is not, by itself a great deal of lost revenues, but when added with millions and millions of other transactions every day, retailers are faced with extraordinary fees.
Look at the back of a Visa Gift Card package to read their “important things to know.”
Visa’s solution for handling low balances on gift cards is to have you ask sales clerks to split the charge, which as a merchant we know is nearly impossible when the register is crowded with customers and adding any special transactions leads to nightmarish roadblocks.
In Visa’s own words: “If you try to purchase an item of greater value than your card balance, your card will be declined. To purchase an item that costs more than the balance on your card, use a second payment method for the difference.”
If you thought the card associations’ and member banks reaped windfall profits from their merchant interchange fees, this is pure magic for them. Declining cards leads to uncomfortable sales experiences and we think many consumers will just throw away the card with the small balances, and thus earning even more money for the banks.
The film The Graduate had it right when telling Benjamin that the future was in “Plastic.” How visionary they were.
According to their Dec 4 press release, the Merchants Payments Coalition is encouraged by a congressional hearing calling into question unfair credit card practices. Today’s hearing, held by the Senate Permanent Subcommittee on Investigations, is among several held this year that are scrutinizing the unfair practices imposed on consumers and merchants by credit card companies.
“This hearing is another example of how serious the issue of credit card abusive practices is for everyone,” said MPC Chairman Mallory Duncan, senior vice president and general counsel at the National Retail Federation. “The credit card industry has profited from outrageous fees, and congressional attention is beginning to shed some light on a broken system.”
One of the most outrageous fees most people have never heard of is the “interchange” fee, a percentage of each transaction that Visa and MasterCard along with their member banks collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to 2 percent per transaction.
Unlike other credit card fees, credit card companies don’t show interchange on monthly statements while their rules make it virtually impossible to show it on receipts and make cash discounts very difficult to offer. Instead, stores are effectively required to include the fee in the price of merchandise, meaning higher prices for all customers, even those who pay by cash or check. The hidden fee cost consumers and merchants $36 billion last year and is expected to top $40 billion this year.
Earlier this year, the Senate Banking Committee held a hearing on the billing, marketing and disclosure practices of the credit card industry. In addition, Duncan testified on behalf of the MPC during a July hearing on credit card interchange held by the House Judiciary Committee’s Antitrust Task Force. Duncan argued that Visa and MasterCard practices in setting interchange rates have constituted a violation of federal antitrust laws. MPC advocates a payment system that is transparent and open to competition.
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
As a longtime member of our local [Irvine] Chamber of Commerce [since 1990] we are wondering why the U.S. Chamber has not played a more active role in our battle against Visa, MasterCard and its thousands of member banks? Could it be that the member banks are more active and well-funded members than 30 Minute Photos Etc. and ScanMyPhotos.com?
The closest to informational activism we came across was from a search of the word “interchange” which linked to this advisory written by one of the nation’s card processor’s, so really not much meat there.
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Whether you own a business, represent one, lead a corporate office, or manage an association, the Chamber of Commerce of the United States of America® provides you with a voice of experience and influence in Washington, D.C., and around the globe. Our core mission is to fight for business and free enterprise before Congress, the White House, regulatory agencies, the courts, the court of public opinion, and governments around the world.
From its headquarters near the White House, the Chamber maintains a professional staff of more than 300 of the nation’s top policy experts, lobbyists, lawyers, and communicators. The Washington staff is supported by eight regional offices around the country; offices in New York and Brussels; an on-the-ground presence in China; and a network of grassroots business activists.
Our members include businesses of all sizes and sectors—from large Fortune 500 companies to home-based, one-person operations. In fact, 96% of our membership encompasses businesses with fewer than 100 employees.
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During the holiday season, look around. Can you find any VHS cassettes to record television programs on? How about super-8mm movie film? 8-track tapes? 3 /12″ floppy discs? Catching on?
Merchant interchange fees are one of the few holdouts from the pre technology explosion, from before TiVo, MySpace, Youtube and the iPhone. The electronic payment network is today what computer storage devises were years ago. With consumers increasingly relying on their computers to safe keep their valuable digital libraries, Western Digital’s My Book storage system provides users a safe place to secure up to one terabyte (1 TB) of digital content. In the mid-1990’s that hardware would cost about a million dollars and fill an entire room, today it is under $500 and is the size of a few cell phones. With “Moore’s Law”, technology is getting faster and prices cheaper. Except, when you have unbridled market power and control a system that is obsolete. It is like a drug addict who only knows how to stay in a daze.
But, we are awaking Visa and MasterCard and reminding them that their once impenetrable interchange fee fiefdom is on the verge of distinction. Other countries have got smart and demand rates be lowered, in some cases to a tiny fraction of those fees in the U.S., even though our nation is among the most technology advanced, our communications infrastructure should mean it costs less to transmit data, and third-world fraud rates have to be higher, yet they too pay a tiny fraction of our near record merchant interchange fee prices. Technology today is so super-fast, just like our high speed ScanMyPhotos.com picture scanning – we cannot help but lower prices.
Even though the banks are reporting huge problems from its mortgage mess, they would not be allowed to wield their anti-competitive power to artificially hold up what are now obsolete fees to help cover their other mistakes. We understand that only about 13% of all interchange fees are used to actually cover the transactional costs.
Actually, the charge card associations and their member banks can be scrooges year-round.
During the holiday season it can be particular oppressive to non-profit charitable organizations which accept electronic payment donations. They can pay upwards of 5% in interchange fees when benevolent donors present their cards.
Don’t use credit cards to support non-profits. And, even when you do, many are then in violation of their payment agreement, as often times they require a minimum donation. Regular retail businesses would be quickly disenfranchised from their MasterCard and Visa association if they required a minimum. But, we can’t imagine the two networks sending a cancellation notice to, for instance, The American Red Cross – even though they post on their website that there is a $5.00 minimum donation.
Most charities accept donations by credit card in order to facilitate giving by donors. However, keep in mind that charities usually have to pay the resulting merchant interchange fees, which can be as high as 5%. Of course, using a credit card to give is better than not giving at all, but better still is a gift by cash or check.
With crude oil prices topping $99.29 a barrel, Visa and MasterCard’s member banks are reaping extra rich rewards this holiday season. Few motorists understand that a percent of most credit card transactions paid at the pumps goes to the acquiring and issuing member banks of the card associations’ electronic payment network. As the global economy faces this economic energy crisis, the banks are reaping windfall profits. Why exactly are they able to charge a percent of each transaction, when the cost to clear an electronic payment is just about 13% of the total interchange fee cost?
But, there are more questions to also be asking this Thanksgiving holiday.
At supermarkets and other stores, you will find a variety of retailer gift cards. Guess which ones include an “activation fee?” That is right Visa, but not any of the restaurants, book stores or other merchants. Why are the card associations able to charge an additional activation fee anyway? The privilege of using their network, rather than dealing directly with merchants, like Starbucks generates even more fees for them.
If you have a Costco membership card, you know about the annual fee and understand how the wholesale clubs work. It’s fair and everyone agrees to pay to belong.
However, did you also know that retailers are paying “service fees” for the privilege of processing electronic payments? We were unfamiliar until a recent posting on our photo industry’s news group forum. A retailer asked why First Data was charging an “annual compliance service fee” of between $50-100?
Are other payment processors also charging extra creative fees?
We found this link for how one bank explained their extra merchant interchange “annual compliance service fee.”
We just talked with Chase Paymentech, and according to them, our ScanMyPhotos.com [30 Minute Photos Etc.] account has been paying an additional “service fee” each month since November, 2005. When a customer asks us why we charged a certain price, we have an instant answer. In the case of Chase Paymentech, their reply was that they are “not exactly sure what the fee applied to.”
Top executives at 14 major European retailers are asking the European Commission (EC) to lower what they call excessive interchange fees charged by payment card companies. Card companies earn €13 billion euro (US$19.08 billion) in annual revenues from card transaction fees, which the retailers say is excessive.
The letter appears to be timed to coincide with the final stages of the EC’s enquiry into the charges currently levied by MasterCard on cross-border transactions within the European Union. A decision by the EC is expected in mid- to late November 2007
WayTooHigh.com: The Credit Card Interchange Report, is edited by Mitch Goldstone, co-founder of California-based ScanMyPhotos.com, the international online photo preservation service.
Goldstone and co-owner, Carl Berman are also the lead plaintiffs and class representatives in a antitrust class-action litigation against Visa, MasterCard and major banks that was filed in 2005.
This informational web site was created to provide news and commentary updates only. None of the information posted on WayTooHigh.com is intended to constitute legal arguments; it reflects only the opinions of its co-editors and not of any other plaintiffs or other parties involved in the merchant antitrust litigation. The information is not guaranteed to be correct, complete, or current. We make no warranty, express or implied, about the accuracy or reliability of the information posted by WayTooHigh.com or at any other Web site to which this site is linked. (c) 2010
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and Target pick up the phone, Capitol Hill starts to move. That is why MasterCard shareholders and future Visa shareholders need to pay attention. If Washington (or should I say Wal-Mart and Target) gets its way, credit card industry revenues will be slashed.”
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