Saturday, July 30, 2005

Commentary: "Bringing Together Retailers and Consumers"

Lead Plaintiff Commentary: Have you ever wondered what it is like to be involved in the most economically significant antitrust case since the AT&T litigation in the early 1980's? Since the complaint was filed on June 22nd and as lead plaintiff and initiator of a multibillion dollar, antitrust class action lawsuit, we anticipated an arsenal of explanations by the defendants. But, we didn't envision an immediate cyclone of erroneous misinformation.

The polished legal and PR teams of Visa, MasterCard, and the large banks are spinning why they can charge millions of merchants with an interchange fee as high as they want. Interchange fees are the fees charged to merchants by Visa and MasterCard banks for processing credit card transactions. For comparison, think of your checking account. Banks give free checking and a host of other perks for your business. While check clearing and handling fees are substantial, the technology behind POS credit card merchant interchange transactions explains why banks reap more than $20 billion dollars each year from these fees. Why? Because they can.

Most consumers have never heard of such fees, yet these fees average almost 2 percent of every purchase made by consumers with credit cards. It represent a hidden and puzzling tax on such purchases. With nearly one hundred separate fees, we cannot even keep track of what the costs are. The WSJ's April 12th front-page "Marketplace" feature profile referenced our company and just one of these fee increases.

Currently, there is no market force to restrain the repeated increases in such fees in recent years. Now that merchants are fighting back, Visa, MasterCard and the banks are trying to explain why this hidden tax on consumers is justified. Yet, with todayƃ‚’s technological advances and efficiencies, and when the cost of other types of network services such as telephone, internet services and others are declining, credit card interchange network fees are soaring. Really soaring; debit card fees are up nearly 300% since 1999.

When the price of a latte at Starbucks rises, consumers can choose another source to get their coffee, but merchants of every size, from Wal-Mart to 30 Minute Photos Etc. are trapped. There are simply no alternatives when it comes to interchange fees.

At, 100% of our company's online photo orders require a credit card to complete the transaction. This parallels most e-commerce businesses which simply can't operate without electronic payment.

The member banks of Visa and MasterCard credit card associations, by horizontal agreement, collectively set the interchange fees at supra-competitive rates. When you understand that credit card interchange fees are lower in almost every industrialized nation other than in the United States, it becomes transparent how the named defendants are violating the antitrust laws and overcharging by billions of dollars each year.

* Did you know that if a merchant accepts your debit or check card without recognizing that it is different from a credit card, their fees are higher? It is not that sales clerks are not alert to identify what brand card is tendered, but rather, they need to be a "Where's Waldo-type" encryption expert because the cards now conceal the word "Debit" in the hologram and elsewhere.

* Did you know that if the magnetic strip on your card is worn and cannot be read by the credit card terminal, it has to be manually keyed in, and, costs more?

* Did you know that when you use your affinity, frequent flyer card it costs the merchant more and they too are being taken on a ride?

* Did you know that people who cannot afford a credit card pay the same amount for a gallon of milk as someone using a Visa card, and thus are subsidizing every credit card transaction?

* Did you know that there are no interchange fees for check clearing?

Because of billions of dollars in annual profits from these fees - fixed by the banks elected to the Visa and MasterCard Boards of Directors, get ready for an avalanche of polished PR and marketing experts to explain why their price fixing is not illegal. In representing millions of merchants and protecting consumers, our using today's Internet technology is balancing the tone of discussion. For daily updates until we remedy these anti-competitive practices, restore a competitive balance and end Visa and MasterCard's market power visit: The Credit Card Interchange Blog -

Mitch Goldstone and Carl Berman
co-editors -