Merchants sue MasterCard, Visa over ‘exorbitant’ interchange rates

Internet Retailer - Strategies for Multi-Channel Retailing

30minphotos.com leads five merchants in filing a class action suit charging MasterCard International, Visa International and their merchant banks with illegally fixing interchange rates—the fees merchants must pay to accept credit cards.

Five merchants have filed a class action suit charging MasterCard International, Visa International and their merchant banks with illegally fixing interchange rates—the fees merchants must pay to accept credit cards.

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Lead plaintiff in the lawsuit—filed last week in U.S. District Court in Connecticut—is 30minphotos.com, a national online boutique photo service. The lawsuit asks for an injunction to prevent the two card associations and their members from collectively setting interchange fees and asks for yet-to-be determined damages.

The suit contends that the two card associations conspire to set interchange rates, causing merchants to pay supra-competitive and exorbitant fees for card acceptance. Merchant acquirers typically pass increases in interchange on to the merchant in the form of higher discount rates. As a result, the interchange fee acts as a minimum merchant discount fee, according to the lawsuit.
In the suit, the merchants also argue that because Visa and MasterCard have combined market share of 73% of the general-purpose card market, they can raise interchange fees without losing merchants.

The merchants also contend that increases in interchange are not based on increased costs. “Interchange fees are just a way that credit card companies squeeze merchants to enhance their revenue stream,” says Mitch Goldstone, president and CEO of 30 Minute Photos Etc. “There’s absolutely no need for these fees to be so high.”

Online retailers especially have little recourse but to accept the fees because 100% of their businesses require credit card acceptance, Goldstone says.

In a statement, Noah J. Hanft, MasterCard general counsel, said that the lawsuit is “misguided, and MasterCard looks forward to defending interchange, which is necessary for the operation of a four-party system and has been found lawful, efficient and pro-competitive.”

Visa would not discuss specifics of the suit. But in a statement, Paul Cohen, vice president of Visa USA, said that the association plans to “vigorously defend interchange—a business practice that has been both successful in the marketplace and found to be legal in federal court.”

Credit Card Fees Draw Lawsuit By Merchants

Credit Card Fees Draw Lawsuit By Merchants

The National Retail Federation explains why the interchange fee case is so important to all merchants and consumers.

Click here to view article

(Gazette-Times; Knight Ridder Newspapers)

TV-News 14, Charlotte NC - Watch the video link

To watch video coverage of the credit card lawsuit from TV-News 14 in Charlotte, NC

Cliick here to watch video

Class-Action Suit Alleges Visa, MasterCard Fix Fees (DM News)

An antitrust class-action lawsuit has been filed against Visa, MasterCard and several major U.S. banks on behalf of a group of merchants, alleging the fixing of credit card fees, law firm Robins, Kaplan, Miller & Ciresi LLP said yesterday.

Robins, Kaplan, Miller & Ciresi, Minneapolis, is representing merchants in the suit, such as 30 Minute Photos Etc., Irvine, CA; Traditions Classic Home Furnishings, St. Paul, MN; CHS Inc., also of St. Paul; A Dash of Salt, Bridgeport, CT; and KSARRA, Newtown, CT.

The suit, filed June 22 in U.S. District Court for the District of Connecticut, alleges practices by the defendants that cause merchants to pay "supra-competitive, exorbitant and fixed interchange fees for the acceptance of credit card payments," according to the law firm.

"Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a 'hidden tax' that raise prices paid by consumers for almost every product they buy," Robins partner K. Craig Wildfang said in a statement.

Also named in the suit are Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other banks.

This move was undertaken because prior litigation proved ineffective and regulatory action is unlikely, Wildfang said in the statement.

DMNEWS - June 24, 2005 By: Chantal Todé Senior Editor

Merchants Sue Banks Over Credit Card Fees - (WJLA - ABC News)

Merchants Sue Banks Over Credit Card Fees

(Click here to view story)

Suit Challenges Credit Card Fees - (ConsumerAffairs.com)

Suit Challenges Credit Card Fees

June 24, 2005 A class action lawsuit filed by several small businesses accuses Citigroup, Bank of America and other large banks of illegally fixing the price of credit card transaction fees.

Click here to view entire article

(ConsumerAffairs.com)

Companies Assert "Interchange Fee" On Every Charge Is Exorbitant And Unfair (Inc. Magazine)

Antitrust Suit Filed Against Visa, MasterCard

Companies assert "interchange fee" on every charge is exorbitant and unfair. By: Max Chafkin - Inc Magazine

June 24, 2005--Five small businesses filed a class action lawsuit in Connecticut Thursday charging that Visa and MasterCard have been illegally fixing the fees charged to merchants who accept their cards.

The suit alleges that by dictating so-called "interchange fees" -- a percentage of the total sale that is charged to the merchant -- Visa and MasterCard have created a non-competitive environment in which businesses cannot negotiate for lower rates. The lawsuit also seeks an injunction that would allow businesses to negotiate rates with member banks in addition to unspecified damages.
Fees vary depending on the type of card but are usually around 2%.

While Visa said that it is still reviewing the complaint, Paul Cohen, a Visa spokesperson, defended the fee structure in a statement as "a business practice that has been both successful in the marketplace and found to be legal in federal court."

Interchange fees came under fire in 2003 when Wal-Mart settled with the card companies for $3 billion dollars. As part of the settlement, the retailer won the right not to accept certain high fee debit cards, which are generally favored by banks because they bring in high revenues. Card companies argue that the high-fee premium cards are good for merchants since they attract bigger spenders.

Mitch Goldstone, whose Internet photo service 30 Minute Photos Etc. is one of the companies bringing the suit, complained that the fees have forced him to raise prices. "It is a huge hidden tax on consumers," he said.

Said Visa's Cohen, "We believe the merchants in this suit are seeking to shift their normal costs of doing business onto someone else -- the consumer."

Lawsuit targets credit fees (Orange County Register)

Orange County Register, business section-page one, June 24, 2005

Lawsuit targets credit fees Irvine man seeks class-action status in claim that banks fix retailers' costs at a higher rate than is justified.

By ANDREW GALVIN The Orange County Register


An Irvine businessman is leading a rebellion by five small merchants against rising credit-card transaction fees.

Mitch Goldstone's 30 Minute Photos Etc.is the lead plaintiff in a lawsuit filed Wednesday against Visa, MasterCardand a host of banks that issue the credit cards. The suit, which seeks class-action status on behalf of millions of retailers who accept payment by credit cards, was filed in federal court in Connecticut.

The suit targets so-called "interchange fees" that banks charge retailers when customers pay with Visa or MasterCard.

Fees average 1.5 percent to 2.5 percent of each transaction and are rising, Goldstone said.
The lawsuit accuses the banks of violating antitrust laws by conspiring to fix the fees at levels that aren't justified by the costs of processing transactions.

Visa said it would vigorously defend its use of interchange fees. "Our rates are determined in the open marketplace," said Paul Cohen, vice president of Visa USA, in a statement. Credit cards offer merchants increased sales and e-commerce opportunities unavailable without electronic payments, Cohen said. The lawsuit is part of an effort by retailers to pass the cost of accepting the cards to consumers, Cohen said, adding that other merchants have recently sued to be able to levy a checkout fee on customers who use credit cards.

The interchange fees are already passed along to consumers as "a hidden tax" worth billions of dollars a year, Goldstone said. He said he became incensed after Visa and MasterCard began charging higher fees in April for transactions involving frequent-flier cards, which reward users with airline miles. Goldstone told the Wall Street Journal about the issue and was quoted in an April 12 Journal article about the fees.

The publicity led to Goldstone's contact with the Minnesota law firm that filed Wednesday's suit.
Other businesses have also challenged the fees charged to process credit-card transactions. Wal-Mart Stores Inc., the world's largest retailer, negotiated a multibillion settlement with Visa and MasterCard in 2003. Home Depot Inc., Best Buy Co.and others have either won fee cuts or are in talks to do so, according to the Wall Street Journal.

Visa and Mastercard say the fees benefit consumers and merchants by covering the risk of fraud and the cost of providing funds while waiting for payment, the Journal said.
Fees average an estimated 1.7 percent of a transaction and cost an average U.S. household an estimated $232 a year, the Journal said.

Interchange fees were justified in the early days of credit cards, when transactions were conducted manually by swiping cards over carbon-paper forms that had to be shipped in the mail, Goldstone said. Today, technology has reduced processing costs so much that the fees should be eliminated, he said.

As a small-business man, "I have no way of even negotiating with MasterCard and Visa over my interchange fee," Goldstone said.

Click here to read entire article (subscription required)

CHS Joins Battle Against Credit Card Fees (Convenience Store News)

CHS Joins Battle Against Credit Card Fees

NEW YORK -- A coalition of retailers has filed an antitrust class-action lawsuit against Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other major banks, alleging that the companies colluded to charge supra-competitive, exorbitant and fixed interchange fees for the acceptance of these credit-card payments.

The ultimate goal of the lawsuit is to give retailers a voice in setting the correct competitive levels for interchange fees, K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi LLP, who represents the plaintiffs, told Convenience Store News. "No single merchant, even Wal-Mart, would be able to change the system. That's why merchants are best served by a class-action lawsuit," Wildfang said.CHS Inc., which is based in St. Paul, Minn., and has more than 800 Cenex-branded convenience stores, is one of five retailer plaintiffs.

The others are Photos Etc. Corp., doing business as 30 Minute Photos Etc., of Irvine, Calif.; Traditions Classic Home Furnishings of St. Paul, Minn.; A Dash Of Salt LLC of Bridgeport, Conn.; and KSARRA LLC of Newtown, Conn."Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a 'hidden tax' that raise prices paid by consumers for almost every product they buy," Wildfang said in a statement.

"Visa and MasterCard have previously been found to have 'market power' in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level. Even Visa's own economists admit that they cannot satisfy this burden."Due to Visa and MasterCard's market power, the United States has the highest credit-card interchange fees among industrialized countries.

Regulatory authorities in many other countries, from the European Union to Australia, have recently adopted measures to reduce interchange fees, but in the United States, it will take action by the courts to accomplish this."Wildfang told CSNews that he has already received several calls from retailers interested in joining the suit and ultimately expects that more will do so.

An Ongoing SagaHigh credit-card fees have always been a hot topic among retailers, but the discourse heated up after April 1, when Visa and MasterCard imposed a series of significant increases, some as high as 2.9 percent, particularly for new premium cards. In addition to increasing rates, Visa and MasterCard began urging consumers to move to the higher-rate premium cards and away from lower-rate standard cards, according to the National Retail Federation.In May, the Federal Reserve Bank of Kansas City held a conference on credit and debit card interchange fees, saying the rapidly escalating fees amount to a hidden tax on U.S. consumers.

"The fees that the credit card companies charge defy logic and they are using them to increase profits far more than to provide any meaningful benefits to retailers," Teri Richman, NACS senior vice president for public affairs and research, said at that time. "Credit card company rules effectively prohibit retailers from providing discounts for cash or checks in all but a handful of situations. As a result, consumers pay more even when they don't use their cards. It's time for this constant picking of consumers' pockets to come to an end.

"For more on the ways high interchange fees affect convenience retailers and petroleum marketers, see Cost of Credit, a CSNews exclusive report.

Click here to view entire article

NEWS ALERT - June 23, 2005

MOST ECONOMICALLY SIGNIFICANT ANTITRUST CASE SINCE THE AT&T LITIGATION IN THE EARLY 1980's ANNOUNCED

On June 22, 2005, Visa, MasterCard and major U.S. banks were charged with antitrust violations for price fixing credit card interchange fees by a group of merchants seeking remedy to stop this anticompetitive practice and to restore a competitive balance for merchant payment processing.

Disclosure: 30 Minute Photos Etc., owned by the founders of The Credit Card Interchange Blog - WayTooHigh.com are lead plaintiffs in this class action complaint.

Retailers Sue Credit Card Groups Over Fees (MSNBC)

Retailers Sue Credit Card Groups Over Fees

A group of US retailers has filed a class action lawsuit against Visa and Mastercard, the world's two biggest credit card associations, and some of their biggest member banks, claiming the transaction fees they charge are too high

(Click here to view article)

Merchants File Most Significant Antitrust Case Since The Early 1980's AT&T Litigation; Against Defendants VISA, MasterCard and Major U.S. Banks

VISA, MasterCard and Major U.S. Banks Charged With Antitrust Violations For Fixing Credit Card Interchange Fees

Merchants Seek Remedy to Stop Anticompetitive Practices and Price Fixing Minneapolis (June 2005) – Robins, Kaplan, Miller & Ciresi L.L.P. has filed an antitrust class action lawsuit in the U.S. District Court for the District of Connecticut against Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other major banks on behalf of merchants alleging collusive practices of their setting, by horizontal agreement, credit card interchange fees at supra-competitive levels. The Complaint seeks injunctive relief to stop the alleged anticompetitive practices plus damages.

The plaintiffs, Photos Etc. Corporation, doing business as 30 Minute Photos Etc., of Irvine, CA; Traditions Classic Home Furnishings of St. Paul, MN; CHS Inc. of St. Paul, MN; A Dash Of Salt, L.L.C. of Bridgeport, CT; and KSARRA, L.L.C. of Newtown, CT, represent a class of merchants that operate millions of commercial businesses throughout the United States that accept Visa and MasterCard as a form of payment. At issue are the alleged practices by the defendants that cause merchants to pay supra-competitive, exorbitant and fixed interchange fees for the acceptance of these credit card payments.

“Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a ‘hidden tax’ that raise prices paid by consumers for almost every product they buy,” says K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi L.L.P., who represents the plaintiffs. “Visa and MasterCard have previously been found to have ‘market power’ in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level. Even Visa’s own economists admit that they cannot satisfy this burden. Due to Visa and MasterCard’s market power, the United States has the highest credit card interchange fees among industrialized countries. Regulatory authorities in many other countries, from the European Union to Australia, have recently adopted measures to reduce interchange fees, but in the United States, it will take action by the courts to accomplish this.”

“Prior litigation, which challenged narrow aspects of Visa and MasterCard’s collusive conduct, has proven ineffective at restraining the increase in credit card interchange fees, and as regulatory action is unlikely, class action litigation is the only alternative that offers merchants any prospect for relief from high, and rising, interchange fees. The card issuing banks that control Visa and MasterCard have the ability to set the interchange fees as high as they want, without any market force to restrain them,” says Wildfang, who is leading the litigation at the Firm with attorney David A. Balto, and others. Co-counsel is Richard Bieder of Koskoff, Koskoff & Bieder PC in Bridgeport, CT.

“Interchange fees are just a way that credit card companies squeeze merchants to enhance their revenue stream. There is absolutely no need for these fees to be so high, and without anything to control them, the banks and the credit card companies continue to find ways to escalate the fees. We hope this lawsuit leads to significant changes,” says Mitch Goldstone, President and CEO of 30 Minute Photos Etc. and 30minphotos.com, a national online boutique photo service. Goldstone and co-owner Carl Berman write The Credit Card Interchange Blog, at www.waytoohigh.com.

“The U.S. credit card system is seriously broken and mismanaged, and millions of merchants and consumers are unnecessarily paying for it through credit card interchange fees that are increasing at an alarming rate. This lawsuit will hopefully result in a much-needed major reform of the credit card industry,” says Michael Schumann, co-owner of Traditions Classic Home Furnishings, which operates retail furniture stores in St. Paul and Minneapolis, MN and Naples, FL.

“Small merchants do not have any options available to them to fight this individually, but collectively, I am confident we can make a difference against big banks and credit card companies. These interchange fees definitely affect my bottom line, and I’m ready to stand up for a change,” says Jonathan Mathias, owner of A Dash of Salt, L.L.C., a restaurant and catering business in Bridgeport, CT.

Interchange Price-Fixing Complaint Filing

Click here to view the June 22, 2005 antitrust class action law suit in the U.S. District Court for the District of Connecticut.

BofA, Wachovia named in lawsuit

BofA, Wachovia named in lawsuit

Source: bizjournals.com

National Retail Federation - "Smart Brief"

Retailers rally against credit card fees

Following successful attempts by Wal-Mart Stores, CVS, Home Depot and others to cut credit card transaction fees, a group of smaller businesses filed a lawsuit yesterday against several major banks, alleging collusion on these fees. A lawyer for the plaintiffs said the banks are conspiring on these fees, instead of competing for merchants' business with lower fees. The banks did not provide comment. "Consumers ... don't need to have money taken out of their pockets just so the banks can have higher profits," National Retail Federation president Tracy Mullin said. The Wall Street Journal (subscription required) (6/23)

Merchants Sue Banks for Price-Fixing (AP)

Click here for complete story

Retail merchants seek remedy to stop alleged anticompetitive practices - Photo Marketing Association

From pmai.org - The International Photo Marketing Assn "Newsline" (June 23, 2005)

Robins, Kaplan, Miller & Ciresi L.L.P., Minneapolis, Minn., USA, has filed an antitrust class action lawsuit in the U.S. District Court for the District of Connecticut against Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other major banks on behalf of merchants alleging collusive practices of their setting, by horizontal agreement, credit card interchange fees at supra-competitive levels. The complaint seeks injunctive relief to stop the alleged anticompetitive practices plus damages.

The plaintiffs include PMA member Photos Etc. Corp., dba 30 Minute Photos Etc., Irvine, Calif., USA; as well as Traditions Home Furnishings, Minneapolis, Minn.; CHS Inc., St. Paul, Minn., USA; A Dash Of Salt LLC of Bridgeport, Conn., USA; and KSARRA LLC of Newtown, Conn., USA, all representing a class of merchants that operate millions of commercial businesses throughout the United States that accept Visa and MasterCard as a form of payment. At issue are the alleged practices by the defendants that cause merchants to pay supra-competitive, exorbitant and fixed interchange fees for the acceptance of these credit card payments.

"Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a 'hidden tax' that raise prices paid by consumers for almost every product they buy," says K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi L.L.P., who represents the plaintiffs. "Visa and MasterCard have previously been found to have 'market power' in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level."

"We hope this lawsuit leads to significant changes," says Mitch Goldstone, president and CEO of 30 Minute Photos Etc. and www.30minphotos.com, an online photo service. Goldstone and co-owner Carl Berman write The Credit Card Interchange Blog, at www.waytoohigh.com.

To read today's article in The Wall Street Journal, "Merchants Expand Credit-Card Fight," click here. For an article in today's CNN Money, "Businesses to Visa: 'No More Fees,'" click here.

"Merchants expand Credit-Card Fight" (WSJ, June 23)

"Merchants expand Credit-Card Fight" (WSJ, June 23)

June 23, 2005 - Merchants Expand Credit-Card Fight Lawsuits That Claim Visa, MasterCard Collude on Fees Could Hit Issuers' ProfitsBy JOHN R. WILKE and ROBIN SIDEL Staff Reporters of THE WALL STREET JOURNAL June 23, 2005; The nation's largest banks face a growing legal and regulatory threat to one of their richest sources of profit: the more than $20 billion in transaction fees they charge merchants each year on every credit-card purchase made through MasterCard International Inc. or Visa USA Inc.More merchants are challenging these fees, alleging that banks -- acting collectively through Visa and MasterCard -- are illegally fixing prices. Some recently have won large, undisclosed settlements with Visa and MasterCard that slash the charges, known as interchange fees. Wal-Mart Stores Inc., the nation's largest retailer, won concessions valued at more than $1 billion, while others, including Best Buy Co., Toys "R" Us Inc., Home Depot Inc. and CVS Corp. are negotiating or have already won fee cuts, lawyers close to these cases said. ... Another plaintiff, Mitch Goldstone, president of 30 Minute Photo etc., an online photo service in Irvine, Calif., calls Visa and MasterCard "a giant cartel working against merchants and imposing a hidden charge on consumers."....

Click to read the WSJ article (subscription required)

Businesses to Visa: "No More Fees" (CNN)

Businesses to Visa: "No more fees" WSJ: Merchants call transaction fees charged by banks, Visa, MasterCard price-fixing and collusion. (CNN-Money)

Credit purchases abroad are getting more expensive (LA Times, June 19)

From The Los Angeles Times - Sunday, June 19, 2005, "Travel Insider" by James Gilden

Credit purchases abroad are getting more expensive. Costs of currency conversion are rising as more card-issuing banks add fees to Mastercard's and Visa's charges. By James Gilden, Special to The Times.

Click here to view article (subscription required)

Shell Squares Up to Bank Card Firms, Demands Fee Cut (Opisnet.com)

SHELL SQUARES UP TO BANK CARD FIRMS, DEMANDS FEE CUT

Shell is preparing to flex its market muscle with credit card firms, Oil Express learns. The company, the leading gasoline retailer in the U.S. with nearly 10% of the market, has told Visa and MasterCard that it wants to see a considerable cut in the merchant fees charged to Shell jobbers and dealers. If a reduction isn't forthcoming, the major is readying a strategy that could lower marketer costs without the co-operation of the card firms, says a senior marketing executive.
"We have been having very direct, face-to-face discussions with Visa, MasterCard and American Express over the past 60 days and we expect to see some significant relief for marketers using the Shell brand," says Shell marketing VP Hugh Cooley.

How much relief? Shell has told the firms that it believes fees should be half of what they are today, and should be based on the services the card firms actually provide, plus a small margin. That would put the number that Shell wants to see between .5% and 1%, not the 2% or more some of the card firms are charging.

"This is not something we're doing for us, but something we need to do for our marketers," Cooley told Oil Express last week. "We don't believe it is fair that they (bank card companies) should use gasoline merchants to support their other programs.

Elsewhere, notably in European Union countries and Australia, banks are held to a cost-benefit formula for setting rates, resulting in interchange rates that range from 0.5% to 0.7%. By contrast, rates in the U.S. are the highest in the world (OE 05/16).

Shell is looking for a cut in card fees within the next 60 days or so and if current negotiations yield no positive result, the major "will have to escalate to additional means to get the fees reduced.
Cooley won't discuss the additional steps that Shell might take, but admits that a number of options are on the table, including nominating certain areas of the country where the company will no longer accept one or more of the bank cards.

"People could also make a decision to litigate, but that would not be our preference," he says.
The company has already imported from Europe an individual who has spent the last three years negotiating with card firms there, and has reached out to its largest jobbers, asking them to use their political and banking connections to spread the word that card fees are a huge issue for marketers.

Shell may also step up marketing incentives for its proprietary credit card, which carries no fee at all. Currently, the company is offering consumers who apply for the card a $25 credit on their statement. The promotion should add another 35,000 new card-holders to Shell's card base by month's end, Cooley notes.

Carole Donoghue, Oil Express, Oil Price Information Service, www.opisnet.com

Credit Card Fees a Growing Challenge for Convenience Stores (NACS)

Credit Card Fees a Growing Challenge for Convenience Stores (Fact Sheet: National Association of Convenience Stores, www.nacsonline.com)

While convenience stores were able to rein in most of their expenses in 2003, a significant expense continued to grow: credit/debit card fees. In 2003, these fees equaled approximately 80 percent of a store's profits, and are expected to grow in the coming years.

• Credit card fees are high and growing. For convenience stores, credit/debit card fees, as a percent of gross profit, jumped 20.8 percent in 2003, and now equal 5.8 percent of gross profit. This means that these fees cost the average convenience store $24,265 in 2003, a figure approaching the average per-store pretax profit of $30,700. On an industry-wide basis, the total cost of credit/debit fees was approximately $3.2 billion.
  
• Credit- and debit-card transactions accounted for 32.3 percent of the convenience store industry's $337 billion in sales in 2003, or more than $108 billion in volume. This is a huge increase from the $80.2 billion in credit/debit volume in 2002.
  
• Credit-card fees are the fourth-largest expense at the store level. NACS estimates that card fees are projected approximate the cost of store rent by 2020.
  
• Particularly with the rising cost of gasoline and the higher transactions at the pump, retailers are seeing the impact of credit-card transaction fees. The overall increase in average annual gas prices from 2002 to 2003 (from $1.40 to $1.55) led to a 10 percent increase in the use of credit cards at the pump, with 49 percent of all gasoline customers paying with plastic in 2003. The huge increase in gasoline prices in 2004 -- and 2005 -- has accelerated that trend, and NACS estimates that 70 percent of all gasoline purchases are now paid with plastic.
  
• With razor-thin margins for retailers selling motor fuels, the credit card associations often make more profit on a gallon of gasoline than the retailer selling the gasoline.
  
• For the first time in 2003, Americans made more in-store payments electronically than they did with cash or checks, according to a Dove Consulting/American Bankers Association study 52 percent of all purchases were made with debit and credit cards.

click here to view entire article

Photo Retailer protesting Higher Fees

From The International Photo Marketing Association Newsline:

Photo retailers among small-business owners protesting higher fees from Visa/MasterCard
The letter that arrived in late February at 30 Minute Photos Etc. was so nondescript that co-owner Carl Berman nearly tossed it in the trash, The Wall Street Journal reports. But then he read the fine print that infuriated him: As of April 1, merchants like 30 Minute Photos would pay a higher fee when customers used one of several premium Visa and MasterCard credit cards issued by the country's biggest banks. Merchants swallow the per-transaction "interchange" fees they fork over when customers pay by plastic because they chalk it up to the price of doing business in a credit-card world. But now they are incurring increasingly higher fees for certain trendy cards that give affluent consumers an array of perks -- from an early chance to score hot concert tickets to snagging reservations at a popular restaurant.
As a result, a backlash is brewing among small-business owners who say they are hurt by the fee creep more than bigger merchants, the WSJ says. To fight back, the owners of 30 Minute Photos, for instance, e-mailed a letter to 25,000 customers on March 31, asking them to contact their charge-card providers to justify the fee increase.
"This is another one of those opportunities for credit-card companies to enhance their revenue stream on the backs of merchants," says Mitchell Goldstone, co-owner of the Irvine, Calif.-based photo-developing retailer that also operates a national online photo service.
Fee increases aren't limited to premium cards, the WSJ says. The National Retail Federation estimates the latest round of interchange fees will raise rates anywhere from 2.7 percent for a basic Visa card transaction to 9 percent or more for a transaction made with a corporate card from MasterCard. All types of credit cards are included in the fee increases -- premium cards linked to airlines, for instance. Fees on a few cards will actually drop; Visa recently lowered some debit-card interchange fees. But the gap between the fee rates for basic and premium cards is widening. On April 1, MasterCard for the first time raised the fees on its premium World card higher than those on its normal card. Visa, which had already been charging more for the use of its high-end Signature card, has raised those prices again.
Merchants can't pick and choose which cards they accept from customers once they sign a contract with Visa or MasterCard, the article says. The card associations set the interchange rate, but the banks issuing the cards receive the fees. Over the past year, Visa and MasterCard have intensely promoted "premium" credit cards to banks, particularly Signature and World, in an effort to get more cards into American wallets in what is a maturing credit-card market. Banks are more likely to promote the cards if they garner a higher fee. Now that merchants are expected to foot more of the bill while customers receive perks, some are devising ways to discourage credit-card use. One tactic: encouraging customers to pay by alternative means.
Ultimately, consumers may feel the effects of the fee increases if merchants raise prices to cover their costs, the WSJ says. The National Retail Federation, for one, calls the fee increases a "hidden tax increase for American consumers." While bigger businesses can absorb the fees more easily or pass them along unnoticed by raising prices a few pennies, small businesses say they risk alienating customers when they're forced to raise prices. Visa and MasterCard say the new rates are justified because consumers who use the premium cards tend to spend more, which in turn benefits the merchants.
To read the complete April 12 article, "Merchants Balk At Higher Fees For Credit Cards," visit www.wsj.com.

Why you should be concerned about interchange fees

Why merchants should be concerned:

Every business that accepts credit cards should have a seat at the table to help design and modernize the future interchange system. The most recent credit card associations' rate increase on April 1st dared merchants. 30 Minute Photos Etc. responded and we hope you will too. Now with nearly one hundred separate fees, including a new set of fee increases for affinity cards (frequent flyer and reward cards), cardholders are not the only ones being taken on a ride. These monstrous interchange charges are a hiden tax on consumers as well.

Interchange fees are just a way that credit-card companies squeeze merchants to enhance their revenue stream. There is absolutely no need for these fees to be so high, and without anything to control them, the banks and the credit card companies continue to find ways to escalate the fees.

(written by Mitch Goldstone and Carl Berman - WayTooHigh.com)

The Credit Card Interchange Reform Objectives and Goals

The goal of this credit card interchange blog is to draw attention to this issue that affects nearly all merchants and consumers.

Part of this informational effort includes pending litigation to reform a system that is unfair, discriminatory and is a hidden tax on consumers. The credit card imposed interchange fees are added into the cost of doing business. Those without access to credit cards - typically consumers with lower economic means - end up paying more. While they pay in cash, the price for products and services are the same for cash or charge card. Merchants pass on these fees equally to credit card and cash customers.

The interchange rates therefore discriminate against economically disadvantaged, especially people within inner-cities where cash is predominantly used. These interchange fees are a hidden tax on the poor; an example is a large convenience store chain which pays upwards of $30 million a year in credit card interchange fees, yet nearly 40% of their customers pay cash.

Solutions to benefit merchants and consumers

Solutions:

1) Prohibit credit card associations from fixing uniform credit card interchange fees.

2) Prohibit credit card associations from enforcing rates that limit merchants' ability to avoid high interchange fees.

3) Permit issuers, acquirers and merchants to voluntarily agree on interchange fees.

4) Discontinue collectively-set interchange fees. (The Visa and MasterCard networks could function efficiently without collectively fixed interchange fees. Even if members of Visa and MasterCard did not fix the interchange fees, the network could continue in their role as clearinghouses between issuing and acquiring banks. There are many examples of similar networks that function very efficiently without collectively-set interchange fees).

5. Please add your comments and suggestions for additional solutions below...

Merchants Balk at Credit Card Fees

By GWENDOLYN BOUNDS and ROBIN SIDELStaff Reporters of The Wall Street Journal. -4-24-05 - From The Wall Street Journal Online

Click to view link, Southcoasttoday.com

The letter that arrived in late February at 30 Minute Photos Etc. was so nondescript that co-owner Carl Berman nearly tossed it in the trash. But then he read the fine print that infuriated him: As of April 1, merchants like 30 Minute Photos would pay a higher fee when customers used one of several premium Visa and MasterCard credit cards issued by the country's biggest banks.

Merchants swallow the per-transaction "interchange" fees they fork over when customers pay by plastic because they chalk it up to the price of doing business in a credit-card world. But now they are incurring increasingly higher fees for certain trendy cards that give affluent consumers an array of perks -- from an early chance to score hot concert tickets to snagging reservations at a popular restaurant.

As a result, a backlash is brewing among small-business owners who say they are hurt by the fee creep more than bigger merchants. To fight back, the owners of 30 Minute Photos, for instance, e-mailed a letter to 25,000 customers on March 31, asking them to contact their charge-card providers to justify the fee increase.

"This is another one of those opportunities for credit-card companies to enhance their revenue stream on the backs of merchants," says Mitchell Goldstone, co-owner of the Irvine, Calif.-based photo-developing retailer that also operates a national online photo service.

Fee increases aren't limited to premium cards. The National Retail Federation estimates that the latest round of interchange fees will raise rates anywhere from 2.7% for a basic Visa card transaction to 9% or more for a transaction made with a corporate card from MasterCard. All types of credit cards are included in the fee increases -- premium cards linked to airlines, for instance. Fees on a few cards will actually drop; Visa recently lowered some debit-card interchange fees.

But the gap between the fee rates for basic and premium cards is widening. On April 1, MasterCard for the first time raised the fees on its premium World card higher than those on its normal card. Visa, which had already been charging more for the use of its high-end Signature card, has raised those prices again.

For example, a business owner who sells a $100 pair of earrings may pay $1.65 in interchange fees if that customer uses Visa's Signature card. The same purchase made on a basic Visa card might cost the merchant $1.51. But the pricing structure is far from simple. Like the intricate fare schemes in the airline industry, there can be dozens of interchange rates at the same time, based on the types of merchants and the amount of card transactions they generate. Big merchants with large numbers of transactions can often negotiate better interchange rates from Visa and MasterCard than smaller businesses. A large gas station chain, for instance, may pay less than the owner of a single restaurant.

Merchants can't pick and choose which cards they accept from customers once they sign a contract with Visa or MasterCard. The card associations set the interchange rate, but the banks issuing the cards receive the fees. Over the past year, Visa and MasterCard have intensely promoted "premium" credit cards to banks, particularly Signature and World, in an effort to get more cards into American wallets in what is a maturing credit-card market. Banks are more likely to promote the cards if they garner a higher fee.

Now that merchants are expected to foot more of the bill while customers receive perks, some are devising ways to discourage credit-card use. One tactic: encouraging customers to pay by alternative means. "I'm going to aggressively welcome checks now," says Joe Hodulik, owner of Framers' Workshop Inc. in Lake Forest, Calif. Same with Mike Steffens, who runs Essence Entertainment Talent Agency in Costa Mesa, Calif., and has written letters to his credit-card processor to complain about the fee increases. "I'm real anticredit," he says.

Leslie Blesius, owner of the high-end home furnishings store Jolie Maison in Highland Park, Ill., is considering imposing a minimum purchase of $20 for customers who pay by credit. Credit cards, she says, are "becoming very cost-prohibitive for me." As for the higher fees on premium cards, she asks, "Because someone gets something from United Airlines should I be paying a higher fee?"

Among the perks customers who use Visa's Signature card may receive: landing the penthouse suite at the upscale Bellagio hotel in Las Vegas and getting silver products personalized from a variety of chic stores.

MasterCard's World, meantime, has a concierge service to help cardholders get golf tee times or with personal shopping. Consumers sometimes pay a higher annual fee for these prestige cards than the run-of-the-mill variety -- the Northwest Airlines Signature card from U.S. Bancorp costs $90 a year, for example. The banks use the interchange fees to help pay for the loyalty programs associated with the cards.

Ultimately, consumers may feel the effects of the fee increases if merchants raise prices to cover their costs. The National Retail Federation, for one, calls the fee increases a "hidden tax increase for American consumers."

"What good is it for me when they show up with a premium card?" asks Taylor Bond, president and chief executive of Children's Orchard, an 85-unit franchise reseller of upscale children's clothing based in Ann Arbor, Mich. "For an organization like ours where every penny counts, we are a bit befuddled about how this does anything for us but subtract from our bottom line."

While bigger businesses can absorb the fees more easily or pass them along unnoticed by raising prices a few pennies, small businesses say they risk alienating customers when they're forced to raise prices. "What consumers don't get is that when a fee is passed on to a business, sooner or later it gets passed on to a consumer," Mr. Steffens says.

Visa and MasterCard say the new rates are justified because consumers who use the premium cards tend to spend more, which in turn benefits the merchants. MasterCard estimates that its World card, introduced in late 1996, generates six times more transactions per card than its platinum card. Overall spending on the World card is seven times higher than on platinum.

For Visa, the eight-year-old Signature card represented about 10% of the $1.04 trillion in sales charged on Visa cards last year. Notably, Visa launched a new advertising and marketing push for Signature last year and introduced another tier of pricing for merchant fees for a midlevel card called Traditional Rewards that is higher than its basic card.

The latest round of interchange fee increases comes at a time when Visa and MasterCard are facing more competition than ever from longtime rival American Express Co., which is widely regarded as having the highest interchange rates in the industry. Another big rival: debit cards, which are the fastest-growing segment of the card business and have lower fees than traditional cards.

American Express doesn't disclose its interchange fee, but its U.S. "discount" -- which includes interchange and other fees on all the cards it offers -- averaged about 2.4% last year -- or $2.40 for every $100 spent. A Morgan Stanley report found the weighted average for Visa and MasterCard interchange fees will rise to 1.86% in 2010 from the 1.75% rate last month.

American Express is also taking on Visa and MasterCard when it comes to financial institutions. For years, Visa and MasterCard prohibited their member banks from partnering with American Express, but those rules have now been tossed out, leaving the marketplace open. American Express has already formed partnerships with Citigroup Inc. and MBNA Corp.

"Although Visa and MasterCard's premium cards have been around since the late 1990s, each organization has re-emphasized these products in order to pre-empt member banks from joining forces with American Express," wrote Kenneth Posner, a Morgan Stanley analyst, in the report issued last month. He estimated that premium cards account for about 18% of MasterCard and Visa's consumer sales volume.

In the heated war for a slot in consumers' wallets, the credit-card companies and banks want spenders such as Todd Selby, a professional portrait and fashion photographer in New York City. Mr. Selby, who travels frequently, says he uses an American Airlines-affiliated credit card "for everything." As a small businessman, he considers the fee increases "absolutely ridiculous."

Aside from encouraging customers to pay by cash or check, small-business owners say they are frustrated by their lack of options. Mr. Selby complained to his credit-card provider but was told, "it's not our department." Mr. Hodulik of Framers' Workshop is taking a different approach. If a customer uses a premium card to pay for a purchase, he says he'll tighten his belt in other ways: "I just won't eat out that night."

[source: South Coast Today / WSJ]

The Problem of Interchange Fees: Costs Without Benefits?

The Problem of Interchange Fees: Costs Without Benefits? (By: David Balto 2000 - Robbins, Kaplan, Miller & Ciresi)

Consumers are well aware of many payment systems costs, such as annual fees for credit cards, current account overdraft fees, late payment fees, and ATM fees. Far less transparent are "interchange fees"—the fees that banks pay one another for each credit card, debit card and ATM transaction made by their customers. Interchange fees have existed for over a quarter of a century, so some might assume they are a necessary fact of life. But they have increased significantly over the past few years, and thus disputes and controversies between merchants and banks over the fees are intensifying.

In the United States a group of merchants have sued Visa and Mastercard seeking over $8 billion in damages for supra-competitive interchange fees.1 Just last month, in a report to the Chancellor of the Exchequer, a U.K. study on banking services called for substantial reform of the use of interchange fees.2 In Australia, the Competition Commission is studying the role of interchange fees.3 In the United States alone inter-change fees amount to billions of dollars each year, so the resolution of these disputes can have a tremendous impact on the fee income earned by banks and other financial institutions and ultimately on the efficiency of the payment system.

Press Release: "Interchange is a `Home Run' for the Economy...'"

Click here to view entire news release

Visa announces fee cuts for retailers in Australia

From The Age: "Visa International has announced $25 million in fee reductions charged to retailers accepting Visa debit cards. Visa said it had cut its interchange fees from an average of 95 basis points (bps) to 50 bps on Visa debit transactions..."

Click on this link to read more:
http://www.theage.com.au/articles/2003/10/31/1067566086172.html?oneclick=true

Background on credit card interchange collective price fixing antitrust litigation

Background:

Interchange fees were originally regulated, audited and designed to pay for the cost of transferring money from buyers to sellers. It was designed to balance the cost of transferring money, quickly, efficiently and at a low cost. But, in reality the rates only rise. There is no economic justification for these anti-competitive fees. This is a mature network that is highly inefficient and is a hidden tax that is affecting millions of businesses and consumers. The Interchange rates have increased 85% since 1998. There was no Interchange fee prior to the 1990's and no fee for PIN debit cards; think of the ATM machines - initially there was no transaction fee, just like with writing checks. Electronic transactions inherently should cost less just because it?s automatic and more efficient.

Mitch Goldstone and Carl Berman, founders of "WayTooHigh.com" operate The Credit Card Interchange Blog to provide an informational tool with regular updates. WayTooHigh.com suggests that the friction between banks vs. Merchants / consumers is about to explode; the credit card associations operate in an anti-competitive market power over merchants. Price fixing is illegal and most merchants have little ability to negotiate with Visa and MasterCard for lower interchange fees.

Did you know that the card-issuing banks that control Visa and MasterCard have the ability to to the interchange fees as high as they want and there is no market force that restrains then from doing so? As merchants and consumers begin to understand and learn about these interchange fees, they too will be better informed.