Sunday, June 12, 2005

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