Why the credit card industry does better when their customers are doing worse

Since 1990, I have owned and operated a photo imaging business in Irvine called 30 Minute Photos Etc. and now ScanMyPhoto.com.   Times are tough for a lot of retailers just like they are for a lot of our customers.   But it’s not just the economy that make times tough for retailers and our customers.    It’s the credit card industry.  

The credit card business is designed to do better when Americans are doing worse.   Visa, MasterCard and their bank partners are arbitrarily raising interest rates on existing credit and debit card, raising credit card late fees, and even charging interest on credit card debt that is paid on time.  

But what actually cost consumers more is the huge, hidden fees on every credit card transaction known as interchange that is passed through to customers in the form of higher prices.  Two dollars out of every $100 spent in the U.S. in stores and gas stations goes to pay interchange also known as swipe fees whether the customer uses plastic or not.   

But it’s not just credit card hidden fees that are skyrocketing, debit card fees are also rising.  As Andrew Martin wrote in “The Card Game – How Visa, Using Card Fees, Dominates a Market”  in the New York Times on January 5, 2010, Visa pushed signature debit over PIN debit starting in the early 1990s because they could charge 13 times the fee for signature debit than they could for PIN debit – even though PIN debit is the more secure choice for the customer and less prone to ID theft.  

WATCH VIDEO

That’s right.   Visa decided to push signature debit even though it compromises cardholder security compared to PIN debit just to make more money for its member banks.  Visa and MasterCard also have rules that prohibit merchants from telling customers that they are paying inflated fees at point of purchase due to swipe fees.   Visa and MasterCard partner banks won’t disclose on their customer’s monthly card statements how much these fees cost them either.   And merchants are prohibited from discounting the price for customers who pay by cash, checks, or lower cost debit, such as PIN.    

 It’s outrageous behavior like this by Visa, MasterCard, and their partner banks that led me to become the lead plaintiff in what may be the largest class-action antitrust litigation in U.S. history, one designed to help rein in the credit card industry.

Interchange fees were designed 40 years ago to cover the costs for manual credit card imprinting (remember carbon copy receipts?). Today, technology and other efficiencies have made credit card swipe fees all but unnecessary.  There are no interchange fees when using store gift cards or writing checks – but due to unbridled market power of Visa, MasterCard and their partner banks there are still interchange swipe fees.  

Ten years ago, when my company first started using digital scanning, it cost $5 dollars per photo because the process was so expensive.   Today I charge 5 cents because the process has never been cheaper.  Unlike the credit card industry, I operate in a free market.  Even if I tried to charge $5 for digital scanning like ten years ago no one would pay it – they just go down the street to the next guy with a digital scanner.  

It has never been cheaper to swipe a credit or debit card.  But unlike the market for digital scanning – or for that matter gas, groceries, and all other retail goods and services — there is no competition down the street to lower the cost of card transactions.   Visa and MasterCard control 80% of the card market and their respectively card networks set the price.  That’s why credit card swipe fees, unlike retail prices, are the same in all fifty states.   No wonder the cost of swipe to consumers has tripled since 2001 to $427 per average household.     

Every other economically advanced country has either reformed interchange or is in the process of doing so.    But largely because of the power of the credit card industry in Congress, Americans pay the highest credit and debit card swipe fees in the world.   We pay four times what Australians pay for the exact same set of credit card goods and services.  So write your congressperson, write your senator, and tell them that you want them to put out the fire that is burning a hole in your pocket.

$25 Oil vs. $60 Billion Visa & MasterCard Interchange Fees?

The greedy banks and auto industry execs failed their shareholders and Americans. Their mismanagement is being rewarded with billions, or is it trillions in free money?

Everything has turned upside down.

Accountability is irrelevant and Washington lobbyists are all powerful.   Look at today’s Merill Lynch & Co assessment that oil might soon be trading at just $25 a barrel, according to a Bloomberg report.   If gas can plunge from nearly $150 to under $50 in just a few weeks, due to the economic seizure, why are the Visa and MasterCard merchant interchange fees – fueled by its member banks – continuing to rise? 

Something is very broken and wrong.

Tulips, Silver, Housing Market and Oil Speculators Have Nothing on MasterCard and Visa

“More customers resume using old-fashioned cash” (via AP)

Cash or credit? For more Americans, who have already maxed out their credit cards or are just trying to manage their spending better in the tough economy, the answer is increasingly the old-fashioned one.

Retailers like Wal-Mart Stores Inc., Target Corp. and J.C. Penney Co. are noticing a marked shift away from credit cards in favor of cash and debit cards. A big factor is less credit available as major card issuers cut spending limits and raise fees even for customers who pay their bills on time.

The shift ends Americans’ long love affair with credit cards and is one of the changes in consumer behavior that has emerged since the financial meltdown that could depress consumer spending this holiday season and affect shoppers’ habits long afterward.

[Click here to read more. source: AP]

 

The New York Times’ Personal Tech Columnist, David Pogue Profiled ScanMyPhotos.com

Wednesday, August 13, 2008

The New York Times’ Personal Tech Columnist, David Pogue Profiled ScanMyPhotos.com

Read the New York Times August 14th ScanMyPhotos.com profile here.

“… the ScanMyPhotos.com service could turn out to be the best $50, plus shipping and optional services, you’ll ever spend.”

“…the results are well worth it. [ScanMyPhotos.com] ships your original photos back to you by Priority Mail (two or three days), complete with a nicely custom-labeled DVD.”

“The scans look very good.”

“ScanMyPhotos probably isn’t getting rich by charging only $50 per 1,000 photos. Clearly, the real money is in the optional services, some of which are ingenious and nearly irresistible. For example, for $125, the company will send you a pre-addressed shipping box that holds 1,600 photos (4 x 6); the price includes scanning and prepaid shipping both ways. If you buy two, you get a third box free, making the deal, when you consider postage, even better than the $50 offer.”

“… you can order a hardbound, custom-printed book containing every single scanned picture; the company even rotates the vertical shots upright for you. The layout is not fancy — the pictures are small and numbered — but in my family, this book was a huge hit.”

Click here to view the New York Times’ August 14th feature on ScanMyPhotos.com

 

photo scanning, slide scanning, how to scan photos David Pogue, Eastman Kodak Company, Kodak scanner, Personal Tech, Scanmyphotos.com

 

 

Assault on Visa and MasterCard’s Merchant Fees Escalates in the WSJ

The magnifying attention to what we assert is illegal price-fixing by Visa, MasterCard and its member banks is gaining concentrated global attention.

After a recent Wall Street Journal commentary (Credit-Card Wars,” Review & Outlook, March 29) that was favorable to one of the publication’s largest advertising categories – financial services – we anticipated a monstrously loud examination from retailers and the public. Today it happened.

There were four letters published in Thursday’s WSJ “Letters to the Editor” section.  Our guess is that many more did not make the cut either, including ours (see below).  Then again, we already had one published on Jan 10th. See link.  For an overview of today’s response and our letters, see below.

• Merchants Must Submit To MasterCard’s Power
  WSJ, January 10, 2008; Page A13

  The European Union has found, again, that interchange fees charged by MasterCard to merchants are fixed at anticompetitive levels. Instead of recognizing that the nearly $40 billion annual hidden tax on merchants and consumers is based on illegal price-fixing, Joshua Peirez of MasterCard Worldwide hauls out the usual replies (“EU Killing of Interchange Fees Won’t Help Customers,” Letters, Dec. 28).

  The fact is that consumers, the marketplace and technology, not interchange fees, are what force innovations within the electronic-payment network. The actual cost of an electronic payment is a tiny fraction of the total fees collected, yet Mr. Peirez suggests that “interchange fees are necessary to fairly share the cost of an electronic payment system.”

  Merchants are unable to pay a fair price for using MasterCard’s (and Visa’s) payment network; we are all forced to submit to their market power and their member banks’ ability to collectively fix interchange fees at noncompetitive levels. MasterCard’s long history of anticompetitive price-fixing corrupts its understanding of Economics 101, where the marketplace controls competition, not a board of directors who stand accused of illegal price-fixing.

  Mitch Goldstone
  President and Chief Executive
  ScanMyPhotos.com
  Irvine, Calif.

  (Mr. Goldstone is the lead plaintiff in merchant-interchange litigation against Visa, MasterCard and leading member banks.)
  

“Are Credit-Card Fees Fair, to Whom, and How Best to Set Them?”  LETTERS/EXCERPT:

• Interchange fees in the U.S. are far higher than those in other western countries. Unfortunately, a market solution is not currently possible because of the credit-card network rules that insulate interchange fees from market discipline. Some credit cards (those with lots of rewards points) cost merchants twice as much as others.

  In a normal, free market, we would expect to see these cards priced differently. Credit-card networks, however, forbid merchants to charge more for credit cards than for other, cheaper payment methods, to charge different prices for different card brands or cards within a brand, to accept only certain cards within a brand, or to accept cards only at certain locations and for certain transactions.

  Innovation and competition cannot push down interchange rates until the card networks’ artificial constraints on the market are banned.

  Adam J. Levitin
  Associate Professor of Law
  Georgetown University Law Center
  Washington
  ————————————————-

• Your editorial comes to the conclusion that soaring Visa and MasterCard “interchange” fees that cost merchants and consumers more than $35 billion each year are no big deal because “retailers have options to avoid the fees.”

  You say merchants can offer a cash discount. In fact, Visa and MasterCard rules make it almost impossible for anyone but gas stations to post both cash and credit prices. And even if they didn’t, the card companies’ systems don’t tell the merchant how much interchange is being charged at the time of purchase, making it impossible to calculate how much of a discount to offer.

  You also claim that large chains negotiate lower fees. There are lower-rate categories for a few large merchants based on dollar volume, but Visa and MasterCard refuse to negotiate these rates and impose them on a take-it-or-leave-it basis just as they do for smaller merchants.

  Finally, with Visa and MasterCard controlling more than 80% of the market, the question of competition isn’t about other cards or PayPal. The issue is that the thousands of banks issuing Visa and MasterCard cards won’t compete to lower interchange rates. Instead, they have historically come together and agreed to all charge the same high fee for each specific type of card. As we have testified before the House and Senate Judiciary Committees, that is a blatant violation of federal antitrust law.

  Visa/MasterCard rules effectively require that billions of dollars in interchange costs be passed along to consumers — a hidden credit-card fee of more than $350 a year — yet most families don’t even realize their pockets are being picked. During the shaky financial times you note, what better way to help the economy than to bring the greed of the card companies under control?

  Tracy Mullin
  President and CEO
  National Retail Federation
  Washington
  ——————————————–

• One important point to merchants that was not developed in the article: It is not the “basic” set of fees for accepting charge cards that many of us take issue with. What aggravates so many merchants and service providers is the fee surcharges that are unilaterally imposed upon merchants for accepting certain types of credit cards most often associated with the multitude of rewards programs so widely advertised.

  How do the likes of Capital One so generously offer the merchandise, discounts, and cash back without losing money? They attach a surcharge to these cards over and above what the merchant expects to pay for accepting these credit cards. The merchant must pay the extra fee. Merchants have no control over the surcharge amount which they are charged, so the card issuers can be ever more generous to the card holder at the expense of the merchant.

  Bill Gardella, Jr.
  Norwalk, Conn.
  ——————————————-

• Credit-card fees are an ever growing expense for all retailers. Credit-card fraud is rampant. Consumers are now starting to default on their credit-card debt the same way they’ve defaulted on mortgages. Your argument that if it ain’t broke, don’t fix it, doesn’t hold here. Would you have said the same thing about subprime mortgages two years ago? Government should be monitoring this ever expensive and important industry.

  Stuart Burke
  Hopkinton, Mass.

Our prevous letter to the WSJ didn’t make the cut, but, here’s a copy in response to a WSJ article.

Dear Editor (drafted, Feb 29), There’s more to Eric Felten’s “the burden of gratuitous gratuities” (Weekend Journal, Feb 29) than just that flaunty tipping jar at Starbucks.  Most consumers don’t know that when they use a credit or debit card to fund their daily fix of java, it adds to a very hefty tip for Visa, MasterCard and its thousands of member banks that make up their cartel.  As Starbucks attunes away from its financial miscues, a giant cost savings would be to return to cash to save consumers from the merchant interchange fees.  Each year, electronic payment interchange fees – including those micro-payments of a buck or two bestow nearly $40 billion in cash to the banks.  These rich fees were once cost-based and designed for clearing those manual credit card imprinter carbon copy transactions on the Visa and MasterCard network.  Today, the lack of competition (Visa and MasterCard own nearly 80% of the market) and the unbridled collusion forces the question: why are these obsolete fees still in force? 

Technology and innovations enable instant, automated and efficient settlements that no longer warrant these tips to the banks

Mitch Goldstone
Co-Editor – WayTooHigh.com – The Credit Card Interchange Report Excerpts from The Wall Street Journal, April 3, 2008

More about the Lead Plaintiffs

For those not following our ScanMyPhotos.com Ecommerce Blog, Tales from the World of Photo Scanning, we did a posting earlier today that mentions the credit card antitrust litigation.  Click here.

WayTooHigh.com: Influencing Opinions and Raising Awareness

Today marks the third year since ScanMyPhotos.com launched WayTooHigh.com – The Credit Card Interchange Report. It is also about the time we received that infamous rate increase letter from Chase Paymentech which was sent to millions of merchants just like us.

Some rates have risen more than 300% in the past few years. The most recent rate “adjustment” letter arrived days ago, but does not identify the new fees until after they take effect. That sympathetic letter from our payment processing service announced a rate increase when cardholders had us process their affinity, frequent-flier signature cards; a quality causing retailers to effectively also be taken on a ride. That was the letter which led to The Wall Street Journal front-page Marketplace profile on our parent company [30 Minute Photos Etc.] and the beginning of our Federal class-action complaint against Visa, MasterCard and international major banks.

Changes have occured over the years. Merchant interchange rates have continued to ascend, while our traditional photographic film business wallowed due to the same technological shifts which made digital more practical.  These are the efficiencies which also helped bring down many antiquated analog services.  Next to film, the yellow page directories, fax machines and thousands of other businesses, the changing times also drew attention to the $40 billion annual merchant interchange debacle which didn’t budge.

But, unlike other businesses that were forced to change, the two giant credit card associations and their 80% market power kept trudging along.  Today, film, phone books and other once shining business models are historic vestiges from an antiquated past.  However, the electronic payment network, which today is super-fast, efficient and liberated from the days of manual credit card imprinters and carbon-copy receipts (that had to be mailed away for processing) remains.When you study the free interchange processing for checks, and international interchange rates that are a third and less the cost in the U.S., you quickly understand that Visa and MasterCard’s game – managed by thousands of member banks – is blemished.  Their anti-competitive price-fixing is illegal and drawing international attention and loud shouts from Washington D.C.

While this website has been written in our voice, as a retailer who best understands the issues, we have also become the leading personality and fixture behind the interchange battle.  And, it continues to gaining traction.  Visa and MasterCard restructured their companies, but the issues and fees remain as do their potential liability.The mix of banks, public relations and legal firms which read our comments each day is shared with close scrutiny by Visa, MasterCard, and much more importantly by other business owners, governments and associations around the world.  From giant multi-national conglomerates to “mom-and-pop” shopkeepers, we have been reporting, sharing commentary and observations with the world community which is also causing grief to Visa and MasterCard.  WayTooHigh.com and the nearly fifty other class-actions suits after we filed the first are shining a knock-down message that time is running out on the cartel’s imposing might.

Many of you have been following the shift in our business too – from film to digital and our extraordinary international media coverage for the new super-fast photo scanning business model we pioneered. From multiple articles in The New York Times, The Wall Street Journal, USA Today and scores of other media coverage, the entrepreneurial passions at ScanMyPhotos.com was successful in making the leap from analog to digital. So, why hasn’t Visa and MasterCard also transitioned from an ancient , cost-based interchange fee structure to one that represents today’s technological realities?

In the late 1980’s technology evolved where transactions were processed electronically and paper records were not needed for most payment card transactions.  Since that time, the costs of various components of credit card transaction processing (phone, data processing and Internet services have decreased significantly.  These changes led to significant reductions in the costs of processing payment card transactions.

As class-representatives, on behalf of the millions of merchants with shared dedicated to eradicating supra-competitive interchange fees, we will continue to engage and call attention to this multi-billion dollar injustice.

News Update From ScanMyPhotos.com

Note to Visa and MasterCard, Not All Costs Keep Rising; Technology Helps Lower Ours

It helps when you are not part of a giant cartel.

ScanMyPhotos.com [30 Minute Photos Etc.] is doing the inverse and not replicating Visa and MasterCard’s business model. We use technology and innovations to constantly help provide more value to our customers around the world (rather than to member banks around the world) and we lower prices.  Our pricing is so low that we receive calls every day asking how we can charge so much less then anyone else.  It helps that we were the entrepreneurs who pioneered this new technology and helped commercialize Kodak document imaging scanners for photo industry applications and, just like the speed of transacting an electronic credit card payment , we too are super fast – 1,000 pictures digitally scanned in 10-minutes.  See Kodak.com profile.

For regular updates on ScanMyPhotos.com and our daily tip and updates on super-fast photo scanning and digital imaging, read our other blog, Tales from the World of Photo Scanning, click here.  On our most recent update, we even have very favorable comments on another large, non-financial services  company.  

It is interesting that since our litigation, the rate of record interchange fee hikes seem to have somewhat mellowed.  While that is a good start, why exactly were they consistantly rising prior to our litigation and how was that justified as technology and efficiencies should have helped lower fees?

  

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

Tales from the World of Photo Scanning

Sometimes, it’s helpful to understand the business model of those most impacted by interchange fees. Today, much of our business is ecommerce and electronic, so we are fully affected by the anti-competitive and enormous 80% market power wielded by Visa and MasterCard. 

For an understanding of how different our businesses are, where technology and efficiencies led to steep price reductions at ScanMyPhotos.com [30 Minute Photos Etc.], visit our blog: Tales from the World of Photo Scanning. 

The blog updates help showcase how we were able to pioneer and commercialize a new technology to help consumers, while Visa and MasterCard continues to operate an antiquated payment system that harms and costs billions.  We are lowering prices while the thousands of credit card associations’ member banks are enhancing theirs.  The interchange fees impact our entire economy.  These are supra-competitive, hidden and obscure fees that amount to nearly $40 billion each year.

This week, as the world’s financial markets face a near melt down, we cannot help but examine how much of the cause was related to the financial institutions mismanagement with the housing market. 

Their funding games are a lead cause for this earthquake-like tremor that is plaguing the world markets.  

Their involvement along with Visa and MasterCard, with illegally fixing merchant interchange fees is another concern.

Just think how helpful that $40 billion annual tax would be if it was not sent to the banks – to help fund their other write-offs – but, instead saved by consumers and retailers if the antiquated payment scheme was terminated.

MasterCard Inc. Update I

We see that the Wall Street Journal (Jan 10, page A-13) ran the “Merchants Must Submit to MasterCard’s Power” letter to the editor today by Mitch Goldstone

 Reprinted in its entirety.

Merchants Must Submit To MasterCard’s Power

January 10, 2008; Page A13

The European Union has found, again, that interchange fees charged by MasterCard to merchants are fixed at anticompetitive levels. Instead of recognizing that the nearly $40 billion annual hidden tax on merchants and consumers is based on illegal price-fixing, Joshua Peirez of MasterCard Worldwide hauls out the usual replies (“EU Killing of Interchange Fees Won’t Help Customers¹,” Letters, Dec. 28).

The fact is that consumers, the marketplace and technology, not interchange fees, are what force innovations within the electronic-payment network. The actual cost of an electronic payment is a tiny fraction of the total fees collected, yet Mr. Peirez suggests that “interchange fees are necessary to fairly share the cost of an electronic payment system.”

Merchants are unable to pay a fair price for using MasterCard’s (and Visa’s) payment network; we are all forced to submit to their market power and their member banks’ ability to collectively fix interchange fees at noncompetitive levels. MasterCard’s long history of anticompetitive price-fixing corrupts its understanding of Economics 101, where the marketplace controls competition, not a board of directors who stand accused of illegal price-fixing.

Mitch Goldstone
President and Chief Executive
ScanMyPhotos.com
Irvine, Calif.

(Mr. Goldstone is the lead plaintiff in merchant-interchange litigation against Visa, MasterCard and leading member banks.)

News Update on ScanMyPhotos.com [30 Minute Photos Etc.]

Click here to view. 

Goldstone at CES, Update

Click here to view offical CES schedule

click here to view Businesswire press release

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]

UnFairCreditCardFees During the Holiday Season and Beyond

From the front sales counter in this battle against the credit card cartel and its member banks comes this holiday story.

This afternoon, a customer at 30 Minute Photos Etc. presented her debit card, which was nearly invisible to distinguish from a traditional credit card.  It was processed as a debit card and the key pad handed to the shopper to enter their PIN number.  She said “oh no, I want this processed as a credit card.” 

What did this mean?  We are charged a much higher interchange fee, rather than a flat-rate, and the consumer still has the funds quickly withdrawn from her account.  The card association’s are conditioning consumers to insist that their debit card be processed as a credit card, even though fraud rates are much less for PIN, rather than signature payment transactions on the MasterCard and Visa network.

[commentary: WayTooHigh.com]

UPDATE: An Extraodinarily Fictional Read, MasterCard® Explains the Value of Interchange Fees

According to a posting on the MasterCard® Newsroom pages, the second largest credit card association writes (what we assert is) extraordinary fiction.

Click here to read it in their own words.

This is MasterCard’s attempt to justify the annual $40 billion fee that merchants and consumers are forced to pay; many are unaware of this hidden tax.

While MasterCard explains that “a number of merchants and merchant trade groups have filed several lawsuits alleging that the U.S. interchange fees that MasterCard establishes violate antitrust laws, and that the cost of interchange is too high,” the litigation is a class-action which represents all merchants – not just a few.

The litigation was brought on behalf of us (30 Minute Photos Etc.), as lead plaintiff, and other businesses and trade associations across the country, not by lawyers. Rather than address the damages, the card association’s published points accuses lawyers for seeking these cases to enrich themselves, rather than discussing the billions-of-dollars that benefit the member banks.

In the case of ScanMyPhotos.com (a division of 30 Minute Photos Etc.) we agree with MasterCard that “every business establishes a price for the goods and services it provides.” in our case, we commercialized an entirely new business model around digitally preserving generations of analog pictures; we designed a technology and operation that also provides ultra low fees. We are not a cartel that artificially fixes prices, in fact, we regularly share our story with the entire photo imaging industry and regularly speak at trade shows like the Photo Marketing Association and even at last January’s (CES) Consumer Electronics Show convention – our rates and how it case about are a secret to nobody.  We will again address CES in January 2008.

In our opinion, the biggest misuse of words is MasterCard’s explanation that the interchange fee benefits to merchants is that it is a “small fee.” Forty-billion dollars each year is anything but a small fee. MasterCard does not fully address the history of these fees and fails to explain that it was created to be cost-based – to cover the manual credit card imprint costs and weighty processing charges incurred when merchants had to mail the paper receipts to have it processed. Today, it is mostly electronic, lightening-fast; and even faster than our super-speedy photo scanning business.

They even use the word “incredible” [”Accepting payment cards provides merchants with an incredible value at a fair price.]” They are right, it is incredible, as in so implausible as to elicit disbelief.

The reality is that with a nearly 80% market dominance, MasterCard and Visa® (which until recently were both owned and controlled [Visa is preparing to launch an IPO] by its member banks) are a monopoly. They control the market. Merchants, like us, are unable to choose not to accept their debit and credit cards – we would be out of business – especially companies like us with a dominant ecommerce revenue stream.

As for interchange fees, it certainly does “help foster… security” but not so much for consumers, as explained by MasterCard, but for the member banks, which look forward to this extraordinarily large cash-cow and unbridled revenue stream; it’s a tax few know about, but generates non-stop riches for MasterCard, Visa and its member banks. If they were so concerned about fraud costs, they would cease the issuance of billions of direct mail solicitations and providing credit cards to risky consumers. Today’s technology is also helping to lower other types of fraud costs, yet interchange fee adjustments do not reflect the cost savings either.

The fees do encourage “banks to innovate and develop new payment options,” but in some cases, to the detriment of cardholders and merchants. Look at the one-hundred plus separate merchant interchange fees which create new revenue streams every time a new innovative scheme is hatched to plunder more money from retailers and cardholders.

When reading the MasterCard explanations, they even discuss how the payment industry is “competitive.” As we see it, the only contest they host is one-way, and the competition is to seek out new ways to increase interchange fees. With an 80% market share, competition is a fleeting dream. Why are rates about 1.7% for an average transaction in the U.S., but only .7% in the U.K, .55% in Australia, and 0.0% for PIN-based cards in Canada?

And, according to MasterCard, they do “recognize that merchants do want lower costs for all aspects of their business.” It is encouraging that they recognize this fact, but if they strive to help lower interchange costs, why then are fees regularly rising?

Words and actions are very different when it comes to interchange issues and our WayTooHigh.com Credit Card Interchange Reportboasts 875 postings since February, 2005. WayTooHigh.com provides our prospective as a long-time retail and ecommerce business.

[commentary: WayTooHigh.com, originally posted Aug 23, 2007]

News on Merchant Interchange Lead Plantiff, Mitch Goldstone at CES

click here for link.

ScanMyPhotos.com CEO Mitch Goldstone to Speak at the Consumer Electronics Show.   Goldstone to speak in Las Vegas at the “Spotlight on Imaging” CES panel on Tuesday, January 8th.

IRVINE, Calif., Dec 17, 2007 (BUSINESS WIRE) — ScanMyPhotos.com, today announced that president and CEO Mitch Goldstone will speak again at the 2008 International Consumer Electronics Show (CES(R)) as part of a panel discussion entitled: “Spotlight on Imaging.” The session is cosponsored by Picture Business Magazine and the Consumer Electronics Association (CEA(R)) which produces the 2008 International CES – the world’s largest consumer technology trade show.

The panel discussion at the 2008 International CES will take place on January 8, at 3:00 p.m.  It will include essential topics about the future of the photo imaging industry and the commercialization of new digital imaging technologies to inspire and enhance the consumer photo imaging experience.

ScanMyPhotos.com, a division of 30 Minute Photos Etc. operates a retail and ecommerce-based photo imaging company that provides super-fast nationwide digital scanning and related photo imaging services. Goldstone and partner, Carl Berman, well-known leaders in the photo imaging industry founded 30 Minute Photos Etc. in 1990 as a retail-based photo center in Irvine, CA.

Today, the company and its ScanMyPhotos.com division provides a variety of photo memory services and products to help picture-takers preserve generations of family memories. These include services using: “Perfectly Clear” photo enhancements by Athentech, professional DVD data discs produced by Microtech’s robotic DVD publishing system, Lucidiom self-service digital photo kiosks, and KODAK’s award-winning i660 document imaging scanners – the engine behind the company’s capacity to digitally scan 1,000 photographs in under ten-minutes.

ScanMyPhotos.com helped commercialize the KODAK document imaging scanners for the photo industry and is profiled on the Kodak.com website. The photo entrepreneurs created a local walk-in and “fill-the-box” scanning service for consumers to order prepaid USPS Priority flat-rate boxes which are mailed out the same day it is ordered. Consumers fill the co-branded USPS and ScanMyPhotos.com prepaid boxes with as many pictures as it can hold (more than 1,600 4×6″ photos). All orders are processed and digitally scanned as jpeg files at 300 dpi and mailed back the same day. The prepaid box costs just $99.95 – consumers also receive a free box when they purchase two prepaid boxes so they can have more than 5,500 photo snapshots scanned for $199.90.

ScanMyPhotos.com, has scanned nearly four million pictures from around the world and was recently profiled or mentioned in The Wall Street Journal, USA Today, The Chicago Sun-Times, The New York Times, Reader’s Digest, Women’s Health Magazine, The Orange County Register, Family Tree Magazine, Popular Photography, Direct Marketing News and scores of other media and Internet / blog coverage

The Difference Between a Debit and a Credit Card

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.

[Commentary: WayTooHigh.com]

Visa and MasterCard Gift Cards, Part II

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.

[commentary: WayTooHigh.com]

Citigroup’s New CEO: Encouraging

As a retailer and ecommerce business, we are encouraged that Citigroup Inc. has appointed Vikram Pandit as chief executive, because he doesn’t come with the hefty baggage that other, more well-known insiders have. Because he has never led a public company, let alone one facing billions in antitrust violations, this might be the turning point that merchants are seeking to regain credibility and question the bank’s (alleged) price-fixing allegations by setting merchant interchange fees by agreement.  According to Reuters, Mr. Pandit has “no experience leading a consumer business,” so we hope his first lesson will be to study WayTooHigh.com and the millions of other merchants’ disdain for the supracompetitive electronic payment fees. Citigroup is a member bank of both MasterCard and Visa’s shared cartel and as we assert, has conspired to collectively fix credit card interchange fees.

We wonder whether Mr. Pandit will shift direction and take responsibility for the bank’s violations?  Certainly, this would be a smart and prudent way to restore confidence in Citigroup.

[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?

Are Visa and MasterCard Merchants Violating Their Rules?

From the Visa and MasterCard merchant requirements, it is clear that many retailers regularly violate their rules, but we are still unfamiliar with how many are penalized.

At 30 Minute Photos Etc., ScanMyPhotos.com and our online ecommerce business, if a picture-taker orders a single 4×6″ photo online, for instance, we charge 26-cents.  But the electronic payment fees are substantially more than that.  As the lead plaintiff in the merchant interchange litigation and as a Visa and MasterCard customer, we are careful not to violate the minimum payment requirement.  But, what about others?

From the Rule for Visa Merchants website listing for card acceptance [page 9], it clearly explains that: “Dollar Minimums and Maximums: Always honor valid Visa cards in your acceptance category, regardless of the dollar amount of the purchase. Imposing minimum or maximum purchase amounts in order to accept a Visa card transaction is a violation of the Visa rules.”

The question is why are merchants, especially non-profits still posting notices requiring minimum payments?

The concern is that record high merchant interchange fees are causing retailers to create their own rules to help soften the effects of these fees.  Previous WayTooHigh.com articles identified groups which blatantly impose minimum charges on their website. 

Test for yourself: when you visit a “mom and pop” store take a look and see if they have a handwritten notice requiring a minimum payment.

Related blog posting: “Requiring minumum credit card purchase is a violation.”

U.S. Chamber of Commerce Silent on Interchange Fees. Why?

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. 

From the US Chamber website:

 Representing your ideas—and interests—in Washington for nearly a century.

The U.S. Chamber of Commerce is the world’s largest business federation representing more than 3 million businesses of all sizes, sectors, and regions. It includes hundreds of associations, thousands of local chambers, and more than 100 American Chambers of Commerce in 91 countries.

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.

Mission Statement:

“To advance human progress through an economic, political and social system based on individual freedom, incentive, initiative, opportunity, and responsibility.”

Programs and Affiliates

• The National Chamber Litigation Center—our law firm that defends business interests and sues government agencies.
• The Institute for Legal Reform—the Chamber affiliate that challenges lawsuit abuse on many fronts, fights for legal reform legislation, and educates voters in state judicial and attorney general races.
• The National Chamber Foundation—our public policy think tank that drives the debate, develops the data and arguments, and influences policy options on the most critical business issues.
• The Political Program—the Chamber’s aggressive political action component that endorses, supports, raises money, and turns out the vote for pro-business congressional candidates from both parties who are engaged in key races.  
• Business Civic Leadership Center—an organization devoted to facilitating corporate civic and humanitarian initiatives.

lead Plantiff, Mitch Goldstone to Address CES

The co-founder of 30 Minute Photos Etc and ScanMyPhotos.com will be announcing in December that he was invited to again address CES: the Consumer Electronics Show in Las Vegas in early January. This is the world’s largest consumer trade show and is the second year that Mitch Goldstone has been invited to present.  As a well-known photo imaging industry speaker, he regularly explains how technology has changed the entire photo imaging industry and created entirely new revenue centers, such as the super-fast nationwide photo scanning service which his company has become famous for.  He expects to again use the example of how credit cards were once cost-based; requiring extensive paper work, thick carbon copy receipts and manual imprinter machines.  Today, just as with his photo imaging and scanning business, everything is lightening fast and much more cost effective.  What he once charged $5.00 for is now low as 2.5 cents.  Conversely, the member banks are accused [by us] of continuing to conspire to illegally fix billion of dollars in fees; fellow retailers are forced to accept whatever charges are demanded.  As a retailer and ecommerce business, 30 Minute Photos Etc. and ScanMyPhotos.com are beholden to Visa and MasterCard and their 80% market power.  Most ecommerce businesses are forced to accept those two leading payment cards to stay in business.

More details on CES in December.

 [Source: WayTooHigh.com]

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]

No Interchange Fee on Gift Cards

Especially during the holiday season speedily encroaching, more retailers are expected to promote their own electronic payment gift cards. Billions will be spend by consumers to purchase plastic gift cards that are unassociated with the electronic payment network.

In parallel to the two leading credit card associations, these cards share many of the same transaction and production costs, yet they are without interchange fees. Just like when writing a check, or using a debit PIN card in Canada, gift cards also abolished traditional interchange fees. 

The retailers understand the value of the cards without imposing those hidden fees that MasterCard and Visa demand.  But, if the card associations challenge our view by explaining that the fees are not hidden – they do post the fees on their website. We challenge them to find a large group of merchants who ever visited those pages and can easily understand the more than one-hundred pages of fees and schedules.

For our business, when a consumer wants a box of 1,000 photos scanned to a DVD, we charge $49.95. Period. ScanMyPhotos.com does not have a hundred page fee schedules. We cannot, after all – we are not controlled by thousands of banks and we do not illegally fix our prices by agreement with others.

Visa® and MasterCard® might argue that their member banks are part of a four-party system, with issuers, acquirers, cardholders and retailers all involved with each transaction. A retailer offering gift cards limit the activities and also much of the expense. However, when Citigroup, JPMorgan Chase and Bank of America, for example, are both the acquirer and issuer, they are getting paid more.  Even realtors selling homes who are on both ends of a residential property sale adjust their fees downward, when they represent both parties.

While gift cards are without interchange fees, the banks are reaping extraordinary windfall profits from an antiquated payment system and because most consumers and merchants are entirely unaware that this is a $30 billion dollar annual scheme which Visa and MasterCard designed, control and are fighting to protect.  And, worst yet. How do most consumers pay for those interchange-free gift cards?  That’s right: with Visa and MasterCard, so the banks garner more windfall profits, even as retailers do not.

Why Credit Card’s Can Be Scrooges During The Holidays

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.