Thursday, October 13, 2005

How Banks Spin Interchange To Make "News" (WayTooHigh Commentary)

During the past few months, "independent research firms" have published proclamations warning against the credit card interchange price-fixing litigation. Because this litigation is the largest antitrust case since the AT&T breakup in the early 1980's be prepared for an onslaught of special interest news advisories and white paper reports.

As a lead plaintiff in the multi-billion dollar antitrust case against Visa, MasterCard and member banks which own the two card associations, 30 Minute Photos Etc. and our Credit Card Interchange Blog: have been closely following the rhetoric presented by these organizations which sell market research reports to its subscribers.

Did you know that these research firm’s are designed in part to advocate on behalf of their clients? They help facilitate businesses with a pay-for-expertise service. When a company yearns to enhance its credibility, research firms can provide favorable editorial prospective to create surveys and authoritative-looking documents on any issue. When you pay, you can help shape the survey questions to highlight the features you aim to promote.

Recently, two leading research firms produced reports which were proactive to the credit card associations.

An August IBISWorld funded “research report” provided trends, statistics and analysis on merchant fees and credit card issuing in the U.S. The report indicated that the “major players” referenced within the report are Citigroup, Bank One and MBNA; all are co-defendants in the interchange litigation. And, the company’s partial listing of “current members” include several of the co-defendant banks named in the interchange, including Bank of America and Wachovia Bank.
The question is whether the materials provided by these research firms are impartial? Is there a proclivity to vent a neutralized response to support the issues favorable to those buying the reports? “News” issued through a PRNewswire or Businesswire-type service are really PR advertisements because the editorial is provided by the issuing company.

What is the accuracy of these strategic intelligence reports and why do several news organizations use the reports as a legitimate source? IBISWorld illustrated on its website that it is “fast becoming the world’s leading strategic business information provider offering a wealth of uniquely comprehensive and powerful information on a number of economies around the globe.”

Whether it is a research firm or association, like the one which former U.S. Congressional member, Susan Molinari heads; her organization’s views help promote their clients. But, these arguments are diminished when you read the fine print. Susan Molinari, national chairperson of Americans for Consumer Education and Competition (ACEC), is partly funded by Visa USA. How do we know this? Just read the last paragraph of her releases. As president of Ketchum Public Affairs, Molinari is chairperson and CEO of the Washington Group, which is owned by Ketchum PR, a global leader in public relations; their former client was Visa USA.

Just follow the money and what reads innocently enough is really a well financed machine to gouge out a public relations victory. ACEC issued several news releases to promote debit cards and support the interchange fees, even though it ends up costing merchants more money and is a hidden tax on consumers. With debit cards, banks get access to the funds instantly, yet retailers pay a percent of sale, rather than a flat fee when the cards are transacted as credit cards, which is easy to do. The card marketers are designing branded debit cards which are nearly impossible to differentiate from traditional credit cards. If Molinari’s organization really cared about restraining of competition, she would address the banking industry consolidation which further reduces fair competition. Fewer banks and fewer credit card companies means less competition and more incentives to control this market.

Here is how these studies work. Molinari referenced Datamonitor’s report within her news release which gets widely picked up and is available on the Internet. She uses quotes from the study as if the comments are newsworthy and from a reliable source. Trade associations are notorious for publishing these types of reports without questioning who funded the study. In the case of Datamonitor, a strategic market analysis company they promote that their reports “supports your product positions with independent white papers.” This, in our opinion, means you pay, they type to “develop customer orientated marketing campaigns and sales propositions.”

Click here to understand how Datamonitor works. Note the bias within its Interchange in Australia report. Who paid to author this report?

Conversely, is operated by 30 Minute Photos Etc., which is a lead plaintiff in the interchange litigation representing a class of merchants battling the ever-increasing horizontal pricing agreement between the banks, Visa and MasterCard which markets their credit cards.

Just like how the interchange fees represent a burdensome hidden tax on consumers, the PR machines behind the banks and credit card associations are equally hidden behind what appears to be polished-looking news reporters. So, during the coming months, look out for several pay-for-play "reports."

[source:, edited by Carl Berman and Mitch Goldstone]