Wednesday, November 30, 2005
[source: The Epoch Times]
Click here to read article
Tuesday, November 29, 2005
DECEMBER 5, 2005 FINANCE - BusinessWeek
When The Bill Comes Due
MasterCard's® new IPO investors will have to pay the company's legal fees.
Priceless. That's the theme of MasterCard Inc.'s® long-running advertising campaign claiming that there are some things in life on which you just can't place a value. Little did the Purchase (N.Y.) credit-card outfit know that someday its own ad shtick could be applied to its upcoming initial public offering.
Just what will investors be buying if they invest in shares of MasterCard® when it goes public next year? Right now, no one can say for sure.What we do know is this: In the first quarter of 2006, MasterCard -- which helped to pioneer the credit card nearly 40 years ago -- will convert from a private, members-only club for banks to a public enterprise. Wall Street forecasts a blockbuster IPO that will eclipse the $1.2 billion raised by search engine Google Inc.
Street estimates put the value of MasterCard® anywhere from a conservative $2.65 billion to as much as $7 billion. In a world where plastic has trumped cash as king, MasterCard®, second only to Visa USA Inc.® as a payment network, seems like a good bet.
But is it?
The credit-card issuer is embroiled in dozens of lawsuits that could cost millions in legal fees and tens of billions in damages -- and new investors could be stuck with the tab. MasterCard® is in a bitter battle with consumers, regulators, and merchants worldwide over issues ranging from data security breaches to processing fees. In filings with the Securities & Exchange Commission, MasterCard® says it plans to spend $650 million of the IPO proceeds on legal fees. It has no other reserves to fight this litigation, and although the banks will probably be on the hook for some of it, they're distancing themselves from the MasterCard® network.
The most damaging cases are some 38 federal lawsuits by merchants that charge MasterCard® and Visa® with antitrust infractions and abuse of market power. MasterCard® and Visa® have already lost a similar case filed by the Justice Dept., as well as a class-action suit led by Wal-Mart Stores Inc. ®in which they had to pay $3 billion in damages. As a result of the DOJ case, American Express and Discover cards have sued the networks and big banks for damages stemming from anti-competitive behavior. "These are terrible cases for the industry," says Duncan MacDonald, former general counsel of Citibank® cards.
"The 'big bomb' is if they are found to have colluded in price-fixing, the dirtiest sacrilege you can commit in the commercial world." A MasterCard® spokeswoman says the company is in its SEC-mandated quiet period and cannot discuss the IPO.
But what the company says in its reports to the SEC is revealing enough. In an amended registration statement filed on Nov. 14, MasterCard states that legal and regulatory risks threaten its prospects for future growth, its profits, and its business model. The company says it believes that the legal woes have been brought on by its ownership and governance structure, and it hopes that by overhauling the board, bringing in new independent directors, and cashing out the member banks who currently set prices, MasterCard can put its legal troubles behind it.Others aren't so sure. "The liability to the banks and MasterCard is unlimited," says William McCracken, chief executive of Synergistics Research Corp., a financial-services market research outift in Atlanta.
Meanwhile, few analysts think that $650 million is enough to cover legal bills and damages, and MasterCard says "it is unable to estimate the amount of potential charges." Says Craig J. Maurer, a managing director with Fulcrum Global Partners LLC.: "If the motivation to go public is to protect itself from legal problems, that's a pretty thin investing prospect.
"There are plenty of good reasons, though, for MasterCard to do an IPO. It will gain cash to make acquisitions, invest in new technologies, and hire top talent at a time when the payments industry is becoming brutally competitive. New entrants such as Wal-Mart, PayPal, Google, and even mobile-phone operators are entering the fray. For example, Japan's NTT DoCoMo Inc. plans to launch new cell phones next year that can function like credit cards, in partnership with Sumitomo Mitsui Financial Group, the world's largest bank. MasterCard also plans to use fresh capital to become a better marketing machine, Ã la rival American Express Co. as well as to narrow the longstanding gap between its arch-nemesis, Visa USA.
MasterCard processed $1.03 trillion in transactions last year, less than half of Visa's $2.27 trillion. AmEx is a distant third, at $414 billion.Visa, too, is feeling heat from the lawsuits. On Oct. 20 its board approved a plan to change the company's governance structure by replacing bank executives with eight independent directors. Visa, however, will continue to be owned and controlled by its member banks.
Elizabeth Buse, Visa USA executive vice-president in charge of product development, says the company has no plans to go public, and she is unsure whether MasterCard's reorganization "will afford it any more legal protections than Visa's ownership and governance structures will afford Visa."Both card networks will soon find out. They and their partner banks face their nastiest legal tussle over so-called interchange fees. These are the lucrative charges that banks and the networks collect from merchants every time a credit or debit card is used to pay for a purchase. Merchants typically pass these charges, which by some estimates add up to more than $24 billion each year, on to consumers in the form of higher prices.
"A CIVIL WAR"
Visa and Mastercard have argued for years that their fees are fair. U.S. regulators have yet to weigh in. But foreign governments have so far sided with the merchants. The Reserve Bank of Australia mandated lower fees in 2001 and the European Council and Britain's Office of Fair Trading are considering regulation. Because of class-action laws that are unique to the U.S., legal and credit-card experts here anticipate an ugly battle between lawyers representing the merchants and the banks. "It's a civil war," says MacDonald, who argues that the government should step in.
Even MasterCard's best customers are making things tough. As banks and merchants each consolidate, they are negotiating lower processing rates, thereby squeezing its margins. And as they shed their member status, big banks such as Citi and JPMorgan Chase will finally be free to promote their own brands over the network. This is no small issue. A huge portion of MasterCard's revenue is concentrated among its five largest customers.
For the first six months of 2005, these customers represented $485 million, or 34% of revenues. The loss of any one customer could hurt the business. Already, Citi and GE Consumer Finance have announced they will issue rival American Express and Discover cards.The timing of the IPO seems to be working against MasterCard, too. Financial companies have made up almost a fifth of IPOs in the last few years as newcomers have benefited from low interest rates.
Returns for 2005 listings have been decent, up 7% vs. the S&P's 3.5% gains. But consumer credit quality is faltering and personal bankruptcies are up. The value of MasterCard going public? Hard to say.
By Mara Der Hovanesian, with Justin Hibbard in San Francisco. [source: BusinessWeek]
At first read, you would think that because MasterCard Inc. ® Shareholders approved the planned initial public offering (IPO) that would be good news. But, when you understand that the credit card association's shareholders are the 1,400 banks which own the credit card cartel, new questions arise.
Even the company's CEO indicated part of the reason for selling out to the public is to remedy its multi-billion dollar antitrust interchange fee litigation. This planned $2.5 billion IPO might hedge against future litigation, but does nothing against the price fixing class-action case going back to the early 1990's.
The Credit Card Interchange Report - WayTooHigh.com strives to raise significant attention during the due diligence process.
In addition to this link related to the MasterCard, Inc.® IPO, we are equally focused on these concerns:
1) Why does MasterCard® continue to not post mention of the scores of antitrust suits on its website?
2) Why would the public be interested in risking their capital on a this scheme to reduce the banks risk?
3) Click here for The Credit Card Interchange Report - WayTooHigh.com column on this issue.
By Melissa Campbell; Alaska Journal of Commerce
Sunshine Sports owner John Bice freely admits it: He has next to no idea what all those charges and fees are on his monthly merchant services statement.
"It's incomprehensible," he said. "But it's just part of the costs of doing business, an increasing cost. You just suck it up. It's not like we have bargaining power." He's not far off, say those in the business of credit and debit card processing.
"It's all very confusing," said Mark Lawrence, relationship manager with Heartland Payment Systems, a company that provides merchant services to businesses. Heartland is one of the nation's few third-party administrators of merchant services to openly discuss the processes and the various fees relating to accepting debit and credit cards. And even Lawrence doesn't know it all.
Many merchants open their monthly statements and quickly develop this befuddled expression. There could well be 15 or more different types of fees, depending on how many different types of cards the business accepted that month. There are also various processor fees and something called discount per item fees - a seemingly oxymoronic term that no one seems to know much about. (Attempts to contact Visa Corp. for information about the fees were unsuccessful.)
And those rates and fees can change with little or no notice.
"They make it as absolutely confusing as possible," said Marx Brothers Café co-owner Jack Amon, who has been in business for 30 years. "That's why a lot of people fail in small business. You think you can cook great, then no problem. But you have all this other little stuff to deal with too."
Customer demand dictates that businesses take credit and debit cards. Debit card transactions have now topped the number of checks written to merchants. What are all these fees, and how are small-business owners supposed to know if they're being overcharged?
Finding help - especially from an entity that has nothing to gain by ending the bewilderment - is difficult. Web searches on the issue on the national Small Business Administration, the Small Business Development Corp. and the Chamber of Commerce - all organizations that strive to help small companies - came up empty.
Though they don't consider themselves experts, Gene Fairbrother, lead small business consultant with the National Association for the Self Employed, and Amon had some common sense tips on shopping for merchant services. Heartland's Lawrence also provided some ideas.
The first step to finding a merchant services provider is to ask businesses around you who they use, Fairbrother said. Also, check with your local trade association to see if it has brokered a deal with a processor. Many trade associations have agreements with processors and have bargained for reduced rates and fees for their members.
Before signing a contract, shop around and compare the fees. This is probably the most confusing part of accepting cards. "Merchants should shop three to five processors, and tell them you're shopping," Fairbrother said. "That way, business owners tend to get more information, and that increases the learning curve."
When businesses want to accept credit cards, they go to a bank or a third-party administrator, which is a processor that resells the service for the credit card companies. Amon said he used Wells Fargo Bank for merchant services for years, but the bank raised its rates to a point that he felt was too high. So he started shopping around.
He called Heartland because that organization is associated with the Alaska Cabaret, Hotel, Restaurant and Retailers Association. In the end, Amon signed up with Electronic Merchant Services, an Outside company, but in talking to Lawrence, Amon said the process became much clearer. Lawrence suggested asking the merchant services salesman for a list of every fee that may be applicable to your account, and for how long those rates would be guaranteed.
An array of fees
Businesses that accept cards - credit or debit - are charged fees for every transaction. The fees are called interchange rates, and are a percentage of the value of the transaction. That percentage is different for various types of businesses: restaurants are charged different interchange rates than a department store, for example.
In addition to the interchange rate, each transaction is also charged fees that go to pay the merchant services provider and something referred to as a discount per item fee, which is paid to the credit card company.
The rates may change for small purchases, $15 or less, purchases of between $15 and $25, and for $100 or more.
The average interchange rate ranges from 1.12 percent to about 2.8 percent, Lawrence said. The interchange rates vary depending on whether a credit or check card is used, whether it's swiped or hand-entered into a system, and if you have the customer's billing information. There are different fees for the various credit cards - awards cards (such as airline miles), signature cards (various rewards cards), corporate cards or just a plain bank-issued credit card.
The lowest rate is given for PIN-entered debit card purchases that typically incur the merchant a flat fee. Signing for a debit transaction puts the sale into the interchange rates and comes in at a slightly higher fee.
The processing company serves as the middleman for the transaction, taking care of the money transfers between the customer's and merchant's banks, and between Visa and the merchant. The company charges a fee for that service, about a nickel. Overall, the processor generally keeps 15 percent of all the fees, while Visa or Mastercard receives 85 percent, Lawrence said.
At the end of the month, the business owner gets a statement displaying the total transactions and the various fees. While talking to the salespeople about the services, ask too about equipment costs. Processors generally encourage leasing equipment. Determine the costs of leasing versus buying. Fairbrother said that leasing the slide card terminal can cost upward of $1,000 during the term of a contract, where buying a terminal may be closer to $300.
Once deciding on a provider, get out the magnifying glass and carefully read the entire contract, Fairbrother said.
"The person who finds the information confusing is probably also the person who hasn't read the information and understands it," he said. "Business owners don't read the contract, and it has everything in there. They say they don't have time to read a 20-page, small-print document. Credit card companies are more complex and (extra charges) come after the fact. But you should understand what all those charges are, and they are in the contract."
As with any business decision, make sure to sign up with someone you feel you can trust, Fairbrother said. "Make sure they are giving you a fair value," he said. "They may not be the cheapest, but they will treat you right."
[source: Alaska Journal of Commerce]
Monday, November 28, 2005
Online Gambling Earning Billions
"Syriana" - George Clooney, Matt Damon film could have been about the banking industry too
All In The Family: Chase Paymentech Solutions, North America's Largest Financial Transaction Processor
What’s the Difference Between Some Banks and Drug Dealers?
"Erin Brockovich" Inspiration to WayTooHigh.com
Last Year's $26 billion Hidden Consumer Tax Expected to Skyrocket
Picture of Frustration
Facing a Multi-Billion Dollar Antitrust Litigation, MasterCard Plans IPO
Sunday, November 27, 2005
With scores of antitrust suits against Visa and MasterCard, and more than 150 posting below this one from the Credit Card Interchange Report - WayTooHigh.com, the Nov. 25th Commentary in The Boston Globe by Phil Kerpen (policy director for the Free Enterprise Fund) demonstrates why this $25 billion annual hidden tax is so divisive.
The commentary was written by the Free Enterprise Fund ("FEF"), a fledgling Washington-based conservative think-tank and lobby group. Their prior campaign was running pro-DeLay TV ads.
Columnist Terry M. Neal in the Washington Post explained more about FEF: "The conservative Free Enterprise Fund, a Washington-based group that promotes conservative economic policies, is underwriting a national ad campaign aimed undermining District Attorney Ronald Earle's credibility. And because it is reportedly running in especially high concentration in the Austin market, where the DeLay trial will be held, it's clear FEF is trying to influence the jury pool."
Mr. Kerpen fails to mention anything about our nation's antitrust laws and why price-fixing is illegal. His lobbying group should know that retail and ecommerce merchants have no option, MasterCard and Visa must be accepted or they will be out of business. Even the FEF accepts contributions using the Visa and MasterCard payment system. Their supporters who pay monthly with automatic deductions on their cards pay interchange fees with every individual charge. But, contributors to FEF who pay by charge card once a year incurs a single interchange fee.
While American Express and Discover cards are not party to this litigation, they too will be influenced as the interchange fee disappears and they too will be forced to lower their rates.
As the Credit Card Interchange Report - WayTooHigh.com boasts an arsenal of facts and strength in knowing that merchants and consumers both are rallying to cease these illegal pricing schemes, groups like FEF simply want Congress to handle this matter.
[source: WayTooHigh.com; Click here to view The Boston Globe FEF Commentary]
Saturday, November 26, 2005
It has been more than a decade since banks began issuing debit cards, but they are still trying to figure out how to design viable rewards programs for the fast-growing payment method.
The efforts have been complicated by intense competition for banking customers, huge growth in debit-card usage and the simmering tension between merchants and banks over the fees that financial institutions charge for accepting plastic. Those fees are crucial for the banks, which use them to fund rewards programs that are aimed at keeping their customers.As a result, the nation's largest banks now offer a hodgepodge of rewards programs to debit-card customers.
Some carry annual fees. Many offer rewards only to customers who authorize a purchase with a signature instead of a four-digit personal identification number, or PIN. It can take anywhere from one to four dollars of spending for debit cardholders to earn a single rewards point, frequent-flier mile or penny of a cash refund."
Debit rewards are a struggle for the banks," says Chris Allen, senior manager at Dove Consulting, a division of Hitachi Consulting. "
And a clear winning debit-rewards strategy hasn't emerged yet."
There are more than 234 million debit cards in use in the United States, generating more than $60 billion of sales each month, according to CardWeb.com, which tracks debit data.
About 36 percent of the nation's banks that issue debit cards offer rewards programs with them, up from 24 percent in 2003, according to Boston-based Dove. For the first time, Visa USA Inc. expects its 10 largest debit-card issuers to offer a rewards program by the end of the year. The theory behind debit rewards is the same as credit-card rewards programs: build loyalty by giving the customer something in return for using the card. In the debit programs, many of the rewards echo the "everyday" types of purchases that people make with those cards: Customers of KeyCorp can earn a $25 gift card to Old Navy for 5,000 points or a three-night Caribbean vacation for 70,000 points.
U.S. Bancorp offers several debit rewards programs, including one that lets people enter a drawing for a Harley-Davidson motorcycle each time they spend $1 on a signature-based transaction.Unlike credit cards that allow consumers to pay their bills at the end of the month or carry a balance, debit cards are linked to existing bank accounts.
When a cardholder makes a purchase with a debit card, the funds are automatically withdrawn, typically from a checking account. The payment method is especially popular with consumers who use debit cards as a budgeting tool -- they can spend only the money that is already sitting in the bank.
For the card-issuing banks, debit represents a new revenue stream at a time when profit growth from credit cards is slowing due to intense competition among issuers. By offering rewards programs tied to debit, the banks are encouraging consumers to use plastic at times when they would ordinarily be paying for a purchase with cash or by check.
The problem, however, is that the banks earn less money from debit cards than from credit cards, which can include finance charges, late fees and annual fees. Debit cards usually don't have many consumer fees associated with them.Furthermore, banks earn bigger fees from merchants on credit-card transactions than debit-card payments.
Merchants pay an average 1.6 percent for a credit-card transaction, compared with 1.3 percent on a debit card requiring a signature and about 0.8 percent for a PIN-based debit transaction.Those interchange fees vary widely based on the type of card being used and the kind of purchase being made on it. Interchange at a gasoline station, for example, is less than interchange at an upscale restaurant.
In recent months, merchants have sued Visa, MasterCard International Inc. and the card-issuing banks over increases in those fees. The financial institutions, for their part, accuse the merchants of steering consumers to PIN-based debit transactions, which often don't carry rewards, because they carry lower fees.Debit rewards "is a continuing evolution and we're entering a new stage of growth in the debit marketplace," says Stacey Pinkerd, senior vice president for consumer debit products at Visa.
The card association, which sets interchange fees for its member banks and also provides rewards programs for them, says that debit-card use rises as much as 30 percent after cardholders enroll in a rewards plan.
[Copyright © 2005, South Florida Sun-Sentinel]
Wednesday, November 23, 2005
The U.S. House of Representatives recently passed "H.R. 3893, or the "Gasoline for America's Security Act of 2005." The bill includes a provision to examine interchange and its effect on pump prices at gas stations.
It addresses concerns about inadequate fuel supplies brought to the public's attention in the wake of Hurricane Katrina, according to the National Association of Convenience Stores (NACS), an international trade association for the convenience retailing industry.
The bill's intent is "to expedite the construction of new refining capacity in the United States, to provide reliable and affordable energy for the American people, and for other purposes."
A section of the legislation that calls for a Federal Trade Commission study on price-gouging also includes "an analysis of the role and overall cost of credit card interchange rates on gasoline and diesel fuel retail prices."
NACS said it has been working diligently with Congress to ensure that the legislation speaks to the interests of retailers and the petroleum marketing industry. NACS is also one of the lead plaintiffs in a class action interchange lawsuit against the card Associations and their member banks (see "Trade Groups Sue Visa, MasterCard and Banks Over Interchange," The Green Sheet, Oct. 10, 2005, issue 05:10:01)
The House passed the bill by a vote of 212 - 210. As of Oct. 24, 2005 it resides in the Senate.
[source: Green Sheet]
Tuesday, November 22, 2005
"Black Friday" is the nation's number-one shopping day, with an estimated $8 billion spent on shopping in 2004. The day after Thanksgiving was coined "Black Friday" as the day businesses started to show profits on their books, i.e. "going into the black."
Many major retailers are now referring to the day as "Green Friday," in order to avoid the negative connotations of using the word "black."
Another source calling the day "Green Friday" is Mitch Goldstone. The online photo shop owner and credit card reform activist has been promoting "Green Friday" as a "day without credit cards."
Goldstone has been urging shoppers and activists to use cash to pay for gifts on Nov. 26th, in order to draw attention to the high merchant fees banks and card issuers charge stores when consumers buy goods with credit and debit cards.
"We've been drawing a lot of attention," Goldstone said. "It's being observed by a lot of big companies."
Goldstone is part of a class action lawsuit against Visa, MasterCard, and major banks over the issue of interchange fees.
The nonprofit group Americans for Consumer Education and Competition (ACEC) has come out against Goldstone's crusade, saying that consumers prefer the convenience of using debit cards over cash.
"We are in a technological age where consumers want to streamline the process of purchasing, better track their own expenses, and maintain a certain amount of security -- which becomes challenging when they carry a wad of cash as opposed to one plastic debitcard," ACEC's national chairperson, Susan Molinari, said.
It's just not practical and it's not what consumers or retailers want."
Molinari cited as evidence another poll conducted by the NRF in 2004, which cited debit cards overtaking cash -- and credit cards -- as the chief purchasing tool for holiday shopping.
They claim that "merchants who accept the most widely used credit cards want to pass the costs associated with credit card processing onto consumers ... By adding a surcharge or more appropriate, a `check out fee' to your purchase."
Rather than charging a surcharge, merchants can legally simplify the transaction by explaining to consumers about this $25 billion annual hidden tax. Then, ask their retail customers to pay with cash or checks - both are without interchange fees.
Better yet, why doesn't this group behind the bank-owned mirage explain that what is illegal are the banks-owned credit card associations' violation of antitrust laws and price-fixing?
Sunday, November 20, 2005
"Syriana" - George Clooney, Matt Damon film could have been about the banking industry too (WayTooHigh.com)
Co-editors of The Credit Card Interchange Report - WayTooHigh.com were invited to attend the first pre-screening of "Syriana" on Saturday, November 12th. Click here for commentary on how this important film could easily apply to the banking industry as well. Film opens in early December.
Matt Damon and George Clooney star in
Warner Bros. Pictures' political thriller, "Syriana."
Saturday, November 19, 2005
The nation is preparing for GREEN FRIDAY in protest over the banks $25 billion annual hidden consumer tax. Retailers are asked to contribute proceeds from this $200,000,000 weekend booty that the banks will earn from interchange fees to local charities to help feed the hungry during Thanksgiving.
After GREEN FRIDAY, the campaign moves on to the winter Olympics, where Visa is a worldwide partner. Again the goal is to draw attention to the interchange fees while asking spectators to Italy to use Euros rather than Visa cards (The interchange rate in Italy is less than half the rate in the U..S.).
U.S. shoppers' reliance on credit cards drops as consumers plan ahead for the holidays.
More U.S. consumers will be leaving their credit cards at home as they hit the stores for holiday shopping, according to the "NRF 2005 Holiday Consumer Intentions and Actions Survey," conducted by BIGresearch.
While debit/check cards (34.3 percent) will remain the favored form of payment this holiday season, fewer people will be relying on credit cards when purchasing holiday merchandise (28.2 percent versus 29.5 percent in 2004). In fact, cash has replaced credit cards as the second most-popular payment method, as one in four shoppers (28.5 percent) plans to primarily use cash during the winter holidays, up from 25.9 percent last year. A small percentage (9.1 percent) of shoppers will be writing checks at the register.
"Debt-conscious consumers will prefer to pay out-of-pocket for gifts this year and are making a conscious decision to reduce their reliance on credit cards," said NRF President and CEO Tracy Mullin. "
Advanced screening of "Syriana" - new George Clooney, Matt Damon film could have been about the banking industry too
It might be a cold winter for Visa in Torino, Italy
"GREEN FRIDAY" Can Save American's More Than $200 Million Dollars
Why promoting GREEN FRIDAY is so important
Using cash rather than charge cards might just help feed the hungry on Thanksgiving
What’s the Difference Between Some Banks and Drug Dealers?
"Erin Brockovich" Inspiration to WayTooHigh.com
Visa USA considers changes to its Board
Thursday, November 17, 2005
All In The Family: Chase Paymentech Solutions, North America's Largest Financial Transaction Processor (WayTooHigh.com)
If merchants were curious why the payment processing companies are deftly hushed on the multibillion dollar antitrust litigation against Visa, MasterCard and their member banks, WayTooHigh.com has an answer.
When a single company which handles the electronic payment processing for more than half of all Internet retailers and service providers remains silent on interchange price-fixing charges, we were curious. This consolidation within the payment processing sector should startle. But instead, silence.
And, here is why.
Last month, Paymentech announced that parent company's JPMorgan Chase & Co. and First Data Corp. have reached an agreement to integrate the companies' interests in merchant processing, Paymentech and Chase Merchant Services, and have formed Chase Paymentech Solutions, LLC, effective immediately.
Chase which co-owns Visa now owns Paytmentech too. With Chase Paymentech Solutions now as North America's largest financial transaction processor, the banks don't just have their hands in the largest pot, they own the entire kitchen!
Smart move. Especially as the banks face growing discontent from consumers and merchants. They will be forced to transform and cease their interchange fees, but watch for the possibility of then adding excessive charges on the processing side, which is now the other hand that wasn't already slapped.
During a recent interview, the co-editors of The Credit Card Interchange Report - WayTooHigh.com were asked how the airlines could possibly sue Visa and MasterCard over interchange fees when the banks helped bail them out? We explained that just like how our Ecommerce and retail business still partners with the leading banks and payment processing firms, we are also class representatives and lead plaintiffs in this antitrust litigation against them.
Just as many consumers and retailers still don't understand the depth of this $25 billion dollar annual pilfering and exactly how the voluminous structure of countless fees works, it is clear that the battle ground has widened to include not just the banks but also the processing companies.
Wednesday, November 16, 2005
This year, in stores across America, the day after Thanksgiving will be known as "‘GREEN’ FRIDAY."
WayTooHigh.com is projecting that the banks may incur a windfall merchant interchange fee of more than $200,000,000 during the four-day Thanksgiving holiday. Over two-hundred million dollars!
GREEN FRIDAY can considerably alter that calculation ... and help feed many people.
When consumers participate in GREEN FRIDAY and use cash rather than debit and credit cards, the banks will take notice. This will also help consumers better budget their spending. Another advantage is when retailers contribute proceeds from their savings to local "Meals on Wheels" and food bank charities, the hungry will be well fed during the Thanksgiving holiday.
Based on the national interest in GREEN FRIDAY, we are finding that most people were unfamiliar with the enormous magnitude that merchants, and therefore consumers, pay to Visa and MasterCard each year. Both of these credit card associations are owned and managed by the banks which sit on Visa and MasterCard's board of directors and regularly meet to fix the charges retailers pay.
[As lead plaintiff in the antitrust, class-action price-fixing litigation and as co-editors of WayTooHigh.com we want to clearly point out that price fixing is illegal. The banks set the interchange fees as high as they can get away with and there are no market forces to restrain them from doing so].
This is the reason consumers are gearing up for GREEN FRIDAY. They will use the busiest shopping day of the year to flex their vocal and economic currency to draw attention to the banks' ever-increasing windfall profiteering schemes.
While nation's like Canada have no interchange fees for debt cards, and there is no interchange fees when writing checks, the banks explain that what use to be cost-based is not a reflection of their expenses.
For instance, fraud is one of their main arguments for record high interchange fees. Even though there is no added risk from a worn magnetic strip on the back of a charge card, merchants are forced to pay more. And they pay more for nearly one-hundred other rates, whereas a decade ago there was only a handful of separate interchange fees.
So, if risk of fraud is the reason for excessive interchange fees, then why is it that other nation's have lower fees? Countries better known for economic instability like Greece, Italy and Brazil have tiny interchange fees. If the communications and technological infrastructure costs for transacting business is the argument, then the United States should have the lowest rates.
Banks know that bad debit and fraud issues are better addressed by restricting the more than 5-billion pieces of junk-mail sent each year, often to consumers at higher credit risks. Why merchants are forced to cover consumer fraud makes about as much sense as why merchants now have to pay even higher interchange fees when a shopper uses an affinity frequent flyer charge card rather than a standard card.
Additional information on GREEN FRIDAY is pending.
Tuesday, November 15, 2005
The privately held corporation which is owned by 1,400 banks may either postpone or terminate the planned IPO due to the heightened focus on its credit card interchange fees.
With even more antitrust filings against the giant charge card association earlier this week, although entirely unsubstantiated, it now seems possible that the organization could choose not to pursue their planned IPO. The timing and structure of the IPO is especially noteworthy.
American Booksellers Association and the National Grocers Association Join to Battle Visa and MasterCard, But Does MasterCard Care? (WayTooHigh.com)
[As lead plantiffs and class representatives, the co-editors of The Credit Card Interchange Report - WayTooHigh.com were the first to file class-action antitrust litigation against the card associations and member banks on June 22, 2005 representing their companies, 30 Minute Photos Etc. and 30minphotos.com]
While uniting most merchants and consumers together against the banks, this multi-billion dollar antitrust case seems not to be very important to MasterCard, specifically. Even though economically this is the largest antitrust litigation since the AT&T case in the early 1980's, MasterCard has yet to update its website listing for merchant litigation. With the card association's interest in selling off ownership to the public, WayTooHigh.com is perplexed why they still have yet to modify their website since 2003?
Two more trade associations filed class action suits against Visa USA, MasterCard Inc. and member banks for their merchant interchange fees. The American Booksellers Association and the National Grocers Association and several of its members filed antitrust litigation on Monday.
[More info: Seattle Post-Intelligencer, Nov 14]
Monday, November 14, 2005
In their just issued advisory, the group -- which "enjoys the financial support from Visa USA" -- urged consumers not to permit gas stations to blame the record prices on card fees. What they don't mention is that as gas prices have doubled, so too have the windfall profiteering by the banks. The credit card interchange fees are based on a percent of the sale.
Debit card merchant charges are typically a flat fee. But, when clerks enter the card as a charge card, the consumer's funds are immediately deducted from their account, yet the retailer then pays a percent of the sale.
Motorists pay on average about $1.50 per fill-up directly to the banks when they pay with charge cards.
There is an easy reason that electronic payment processing is an easy target, and you don't need to be a affiliated with the banking industry to figure out why.
Sunday, November 13, 2005
Advanced screening of "Syriana" - new George Clooney, Matt Damon film could have been about the banking industry too (WayTooHigh.com)
Editing of the film by executive producer Steven Soderbergh, who directed "Traffic" and "Erin Brockovich," just completed last week.Staring George Clooney and Matt Damon, this ambicious movie will be released in December. It involves brokering back-room deals in Washington and the intrigues and corruption within the global oil industry. The multiple storylines are weaved together to illuminate the human consequences from the fierce pursuit of wealth and power.
Why is this important to the credit card interchange litigation against Visa, MasterCard and its member banks?The powerful U.S. oil companies fictionally portrayed in Syriana were involved in complex corruption and corporate mischief with explosive impact upon the world. While the backdrop for Syriana involves the global oil industry, there are many parallels to the depths of illegal corporate maneuvering we assert are practiced by the banks which own Visa and MasterCard. Their collusive price-fixing and global reach parallels many aspects of this fictional movie about failures of government.
Syriana illuminates the inner workings of what easily can relate to the banking industry and the executives who keep it running. In portraying the considerable influence and exploitation through many points of view, there are startling parallels to the fight against the multinational banks' anticompetitive practices.
Just as "The China Syndrome" in the late 1970s, "Wall Street" in the 1980s and "Erin Brockovich" in the 1990s drew attention to corporate greed, so too will this film.Gordon Gekko's "Greed is good" speech in "Wall Street," symbolized a decade. Yet that famed phrase is about to be overshadowed by the new corporate-speak from actor Tim Blake Nelson in Syriana:"We have laws against corruption precisely so we can get away with it. Corruption is our protection. Corruption keeps us safe and warm. Corruption is why you and I are prancing around in here instead of fighting over scraps of meat out in the street. Corruption ... Is why we win."
Friday, November 11, 2005
Why is this important today?
Their grassroots campaign to support New York City mirrors the key initiative of today's Credit Card Interchange Report - WayTooHigh.com which also is designed to support our country. But, this time the mission is to benefit every merchant and every consumer nationwide by addressing and drawing attention to the $25 billion annual hidden bank tax on consumers.
Wednesday, November 09, 2005
As gas prices doubled so too have the bank's credit card interchange fees and then some. Motorist accustomed to paying in cash are more regularly paying with credit cards due to the higher charge for filling up.
One of the most powerful memories from the University of Southern California was not just graduating from the School of Business and Entrepreneur Program, but from volunteering on the peer-review board.
As chairperson, one particular student infraction still haunts me today. A pledge-master was freely giving drugs to freshman fraternity seekers; upon winning over their confidence he then became their dealer.
Today, the bank-owned credit card associations share an alarming comparison to the abhorrent practices of drug dealers on a different level. Both exploit the vulnerable and both transact illegal businesses. Price-fixing is illegal.
Through mega-marketing campaigns, the banks promote debit and credit cards; which are now the preferred way to transact business. But, in the process, just as how drug dealers clutch new customers, Visa and MasterCard are equally in control of a mega-monopoly. They set the rates, force the customer to pay whatever they dream up and use their prominence to do just what drug dealers do - get people hooked.
Ashland Food Cooperative, owner of a food-buying club in Oregon is actually discouraging its shoppers from using credit cards, as reported in the Mail Tribune ("The Cost of Doing Business" Nov 8). They even have "plastic-free checkouts." Their policy is similar in scope to GREEN FRIDAY - an educational campaign to use cash rather than charge cards on the day after Thanksgiving. The Oregon co-op even beat us to the campaign. They already have signs urging customers to use cash.
Unlike the clandestine world of drug dealers, banks commenced an arsenal of public relations tools to explain the value of their $25-billion dollar annual plundering on the backs of every retailer and consumer in the nation.
Thirty-years ago their interchange fees were justified. It was cost-based. Today, Visa and MasterCard have market power and the banks which control them are involved in unlawful price fixing which harms our entire nation to the tune of $25-billion every year. With recent record gas prices, their take will soar even higher; remember they get a piece of the action for all charge and debit transactions.
The Mail Tribune article interviewed a bank spokesperson who actually helped not their case, but the antitrust, price-fixing litigation against Visa, MasterCard and member banks. "Joe Danelson, regional president of U.S. Bank - which owns Nova - said that even with the fees, cards are cheaper for merchants than checks because studies show merchants lose more money from check fraud than card fees."
And with that fact, WayTooHigh.com accepts Mr. Danelson’s softball pitch and adds that if charge card transactions are cheaper than checks, then why are their no interchange fees when writing a check? Using Mr. Danelson’s logic, card transactions should then have a negative interchange fee. Perhaps he is on to something?
Tuesday, November 08, 2005
By JOHN DARLING for the Mail Tribune
Few consumers realize that when they use their debit or credit card, the merchant must pay what amounts to a sizable tax on doing business, say managers of Ashland Food Co-op.
That’s why they’re discouraging shoppers from using plastic.
The co-op recently posted signs at checkout stands saying it spent $120,000 last year on card fees and that these expenses put pressure on prices. The signs urged people to use cash or checks, which cost the store nothing.
Click here to view entire article
[source: Mail Tribune]
In our previous message, WayTooHigh.com warned that groups manufactured by or connected with the banks will launch an attack, but their most recent home-page posting is really ... stupid.
On the official-sounding "Americans for Consumer Education and Competition" ("ACEC") home page, next to what we see as the validity for "GREEN FRIDAY," they report on the "recent exchange" between big business and the banks over merchant interchange fees.
Be honest, this isn't a pleasantry "exchange," it is an all out battle.
It is not about "big business, " it is about all businesses - from the corner convenience store in an inner-city to the fashionable boutiques on Beverly Hills. It is a fight with two distinctive sides; every merchant in the nation and all consumers (except this apparent "consumer group") against the banks.
The real news is that for one of the first times, war is equally being waged by the banks against every sector, from "mom-and-pop" entrepreneurs and the giant chain stores and all retailers in between.
The only big business here is the $25-billion annual price-fixing charge the banks impose with collusion on retailers and thus consumers. We have no choice. Of course we have to accept credit cards, but Congress enacted the antitrust laws over a hundred years ago to protect consumers. Now retailers have no choice but to accept their nearly 100-separate and annually-growing interchange fees.
For a group to have the word "competition" in its title, you would think they would honestly address the continuing consolidation, and thus less competition within the credit card industry.
Where were they when HSBC Holdings PLC, the large British-based bank was preparing to acquire Metris Companies Inc., an independent credit card issuer? Did they issue a press release when the giant Bank of America announced plans to acquire MBNA? How about with Washington Mutual buying Providian Financial Corp?
Each of these deals substantially lessens competition. Each of these acquisitions will further shrink what is a rapidly a consolidating market and grow the banks market power. In fact, ACEC's website is a model for showcasing why GREEN FRIDAY is so important. When consumers use cash rather than debit and credit cards on Nov. 25th - the busiest shopping day of the year for non-Ecommerce transactions, it will draw transparent, honest attention. It will help illustrate why the growing battle over banks' interchange fees are so important.
Besides, ACEC should be supporting consumers using cash. The website explains that ACEC "designed [it's] site as a tool to help consumers effectively manage their finances. What better way for consumers to budget then by using cash on GREEN FRIDAY?
Do not be intimidated by ACEC and its message.
They told WayTooHigh.com that the train has left the station. Yes it has. And just like the great train robberies from the Wild West 1800s, even the credit card associations are running away. MasterCard is trying to sell off its liabilities onto the public. Visa is trying to placate merchants with a way-too-late rearrangement of its board.
The fact is look at nearly every other industrialized nation and how each handled their interchange fees. Look to Canada and its primary debit card system. Its interchange fees? It is zero. Or even in the U.S. and writing checks. Again, the interchange fee is zero.
But, do note the last paragraph of the ACEC press releases and its silver-tongued reference to how it "enjoys the financial support of Visa USA." Indeed they do.
Sunday, November 06, 2005
During the next several days leading up to the Thanksgiving holiday, you will be reading a great deal about WayTooHigh.com and "GREEN FRIDAY."
On November 25th, shoppers will choose to pay in cash at stores on what traditionally was called "Black Friday" - the busiest shopping day of the year.
[Ecommerce transactions are excluded because they are already forced to accept charge cards. While most online businesses face 100% charge card transactions, the goal is not to impede business or commerce but to support merchants and consumers].
The goal of GREEN FRIDAY is to have consumers draw attention to the banks' $25 billion dollar annual hidden tax against them. An added benefit is if retailers then contribute proceeds from the savings to local food charities to feed the hungry during Thanksgiving.
And, the needy can be very well fed because during the 4-day holiday weekend consumers' purchases are expected to overwhelm Visa, MasterCard and the banks with more than $200,000,000 in credit card interchange fees.
Cha-Ching! That can make even the most hungry very full.
GREEN FRIDAY does have an uphill battle because the two credit card associations are owned by the leading banks in the nation. MasterCard alone is owned by 1,400 banks that issue its cards.
Now the cautionary news.
The first attack on WayTooHigh.com was by the Visa-funded group issuing a press release last week. Next, we would not be surprised by a bank or fanciful-sounding organization's assault. Usually, this involves publishing a series of advocacy ads in the Wall Street Journal -- in this case against GREEN FRIDAY. These full-page global display color rebuttals typically cost $275,000.
The problem for the banks are the facts.
The latest fact was several comments the co-editors of WayTooHigh.com have been hearing. Consumers and shop owners are inspired by GREEN FRIDAY; several suggested this effort reminded them of an American hero, Erin Brockovich and the power of her human spirit. The difference this time is the credit card interchange fight blankets the entire nation. It covers all retailers and all consumers. The battle is larger and so too are the adversaries.
The real-life story of Erin Brockovich took place before the Internet and before blogs and other high-tech forms of online activism. Ms. Brockovich had to walk door to door, the co-editors of WayTooHigh.com just press a few buttons and instantly are read by the banks and their affiliates following this site, along with consumers and other interested parties across the nation and abroad.
Like Ms. Brockovich's triumph over insurmountable odds, WayTooHigh.com remains confident that with more transparency, daily updates and increased understanding this battle too will be a victory for every consumer and every retailer.
Saturday, November 05, 2005
In an apparent move suggesting that Visa USA's new president and CEO is keeping his word, the nation's largest payment system is making changes.
Upon his appointment just under four-months ago, John Philip Coghlan tried defusing the interchange fee issue. As reported in the Associated Press, Mr. Coghlan explained that he could emphathize with merchants, having been one himself.
Up until now, Visa USA has been managed by a board of directors comprised of the companies which own the card association - the banks. They set the agenda and made the rules. And, with unbridled collusion, they kept raising the merchant interchange fees from a handful just ten years ago, to nearly one-hundred today. Now, that leadership is changing.
For prospective, the average interchange fee in Australia and the UK is just 0.55% and 0.90%, respectively. Even Italy, which is known for more consumer instability and thus high credit card risk factors is also just 0.90%. But, in the United States the average rate is among the highest of all industrialized nations at a staggering 1.70%. Many merchants can pay substantially more than that for various card transactions.
The AP reported that Visa USA will reconfigure its board. The decision still requires approval from the banks which control the board and it could take up to a year to happen.
The AP story indicated that Visa's reason for this modification is partly due to the antitrust litigation. MasterCard's solution is a bit different. The other bank-owned card association plans to hedge itself from the same multi-billion dollar class-action litigation by (in our opinion) pawning off their liability on the public through a $2.5 billion dollar IPO.
Elizabeth L. Buse, a Visa executive, told AP that "it would be absolutely premature to say it was related in any way to further governance or structural changes." [The goals include] "strengthening defense against legal challenges ... Specifically the antitrust challenges that come from having a governance structure made up of our owners and our members."
[Ding! That's the key assertion from the antitrust litigation]
This move suggests that Visa recognizes it was caught with its hands in the cookie jar. A big cookie jar!
The proposed board will have 8 new, independent directors plus 7 representing financial institutions and two non-voting Visa executives. Either way, not a very strong majority.
However, the class-action complaints are concerned with the organization's past anticompetitive practices going back to the early 1990s. Rearranging board seats a year from now is a good first step. It also furthers the argument that Visa's CEO is listening and slowly maneuvering the top over the cookie jar.
Friday, November 04, 2005
Top Tech News reports that "Wachovia has set plans to wade back into the credit-card business after a six-year hiatus, in a bid to challenge soon-to-be-merged Bank of America and other big players in the market. ...On Thursday, MBNA shareholders cleared Bank of America's $36 billion merger offer, setting the stage for the banking giant to move into the upper pantheon in the multi-billion dollar U.S. credit card business."
[source: Top Tech News]
As other countries curb payments system abuses, our policy in this area looks more in need of an overhaul
By Peter Mair - CFO MAGAZINE. November, 2005
The way the credit card game is played is about to change globally. Various initiatives, internationally, are building a consensus that will disrupt the dominant card cartels and allow fairer, more efficient retail payment systems to flourish.
In Britain, the Office of Fair Trading (OFT) has decided that a collective agreement between banks on interchange fees for credit card transactions is contrary to competition policy. Specifically, the OFT said the agreement was being used to recover "extraneous costs" - for providing interest-free credit - not necessary to making credit card transactions.
Excluding any "cost" for interest-free credit from permissible interchange fees would be an important step: most likely, credit cards would then be displaced by debit cards (albeit with a fully priced line of credit attached).
This decision, the same as that initially proposed by our Reserve Bank of Australia (RBA) in December 2001, suggests the RBA was ill-advised a few months later when it changed its stance to let banks factor into credit card interchange fees an unnecessary cost for providing free credit. The consequences of that policy reversal reverberate still, including the present challenge by retailers in the federal court to the RBA plan to substantially cut interchange fees for Eftpos transactions.
In the United States, national retailer groups are taking anti-trust action against banks in credit card cartels: the provocative flavour of this initiative can be savoured at WayTooHigh.com. Not surprisingly, the subtext of this lawsuit mirrors references in the OFT decision to "unduly high interchange fees for credit card transactions acting as a tax on retail transactions".
It remains to be seen whether this initiative of US retailers is more political than practical: a successful anti-trust action in the US against the major credit card schemes would, however, be universally acclaimed.
Responsibility for the efficient and fair conduct of retail payment systems in the US has not yet been given to any regulatory agency. There are glimmers of hope in the current raft of Federal Reserve System conferences reviewing the role of credit card schemes and regulatory policy options. It can be an interesting portent when bureaucratic agencies involve international experts in debates that may translate to regulatory initiatives.
As suggested earlier*, the efficiency of retail payment systems globally will be enhanced once the US puts its arrangements in better order.
Beyond our usual reference group of countries, Norway is a leader in building understanding of the economics of retail payments systems and their regulation. In its recent report on payments, the Bank of Norway says a project group is considering whether there is too little competition between international card systems in Norway.
This report foreshadows regulating interchange fees, if competition for the business of acquiring card transactions does not improve, and allowing retailers to surcharge credit card transactions. Credit card usage in Norway is typically incidental to tourism, and the significance of all this may be more about ensuring that card usage remains "minimal". None the less, if a clear statement of the problems with card cartels is posted on the global village notice board by the Bank of Norway, it will be widely appreciated and respected.
Overlaying particular initiatives, the Committee on Payment Systems of the Bank for International Settlements (BIS) is now finalising a report offering general guidance for payment system development**. The BIS proposes a change from the typical situation in which national policy authorities accommodate the debilitating monopolisation that usually passes for the organisation of retail banking and payments, including in Australia. This BIS report begs tough questions of many advanced countries with much policy work to do if these BIS guidelines are taken to heart.
This report is forthright about payment industry structures. The "my way or no way" attitudes of credit-card scheme operators no longer wash. These organisations would be reformed, with open memberships conducive to operational transparency and effective competition and with customers more likely to be paying, explicitly, prices that reflect the cost of providing the payments services they use (but not extraneous costs).
The RBA, has foreshadowed "governance" reforms for Australia's retail payments system*** - laudable aims for a framework better suited to innovation and change, still with incentives to invest and co-operate, but presumably eschewing the typical, exploitative price-fixing.
This hopeful prospect does not, however, reflect in the newly released annual reports of either the Australian Payments Clearing Association, the industry body whose selfless co-operation would be required, or the RBA's own Payments System Board.
Converting good intentions to effective action seems likely to again elude the RBA - and "no one" is yet acknowledging possible implications for Australian policy of either the OFT decision or the proposed BIS guidelines. The situation is unstable.
[source: CFO Magazine]
Unlike "Americans for Consumer Education and Competition" which easily can be argued is a voice of Visa, as it "enjoys the financial support of Visa USA," The Credit Card Interchange Report: WayTooHigh.com has a simple, transparent message.
WayTooHigh.com provides a history and daily update on credit card interchange fees. The goal is to draw attention to and reform an antiquated, costly and unfair payment system. These unbridled, out-of-control merchant fees are a $25 billion dollar annual hidden tax on consumers. But, not for long.
Yes, the co-editors are also lead plaintiffs in the antitrust case against Visa, MasterCard and its member banks. But, they are also well-known entrepreneurs with a passion for initiating grassroots campaigns in support of our country, commerce and social issues. [ex: see "In The News" on their company's website - 30minphotos.com]. Like all-sized companies, their Orange County, CA-based retail and national ecommerce business is just a snapshot of a national issue caused by collusive price-fixing by the banks which own both charge card associations.
GREEN FRIDAY will help draw attention to these facts:
Country National (credit card) Interchange Rates. Credit card interchange fees are lower in almost every other industrialized country other than in the United States.
EU - Cross Border 0.70%
Kong Kong 1.00%
United States 1.70%
* (source, "Cards Costs" 2004, MPC)
"Interchange fees arguably are meant to cover the technology cost of account processing and the risk taken by the issuing bank that the credit will not be repaid. It is no secret that technology costs continue to fall while processing power increases dramatically" (NACS Magazine, July 2005)
Per U.S. household annual interchange fee in 2004 was $232.00 (source, US Dept of Commerce)
"The decade-long increase in U.S. interchange fees is in contrast to the rest of the world, where interchange fees have declined." (NACS Magazine, July 2005).
We must restore a competitive balance in merchant payment processing. Just look at ecommerce companies like Amazon.com and Travelocity, where all their revenues are based on charge cards. Yes, in today's high-tech environment, where everything is faster, more efficient and transparent, merchant fees continue to skyrocket. (WayTooHigh.com)
Ecommerce businesses are excluded from GREEN FRIDAY because they are already forced to accept credit cards. We should know. Our national online boutique photo service, 30minphotos.com also must pay whatever rates the banks dream up in order to accept MasterCard and Visa charge cards.
Whatever color the busiest shopping day of the year turns out be, one thing is certain. November 25th will be another "blue" day for merchants who again will be forced to submit to the banks' illegal price-fixing schemes.
An objective of WayTooHigh.com is to draw attention to the fact that businesses in most other industrialized nations pay a tiny fraction of the interchange fees charged in the U.S. If you remember the old credit card imprinters and carbon paper receipts, then you understand why the interchange fee was established. It was cost-based to cover the charges for transacting business. But today, it's all electronic, faster, smaller and less costly, yet the banks charge more?