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

January 26, 2010

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.  


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?

December 4, 2008

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)

November 24, 2008

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

August 13, 2008

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.”




More about the Lead Plaintiffs

March 28, 2008

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

March 25, 2008

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 “adjustmentletter 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