Sunday, December 11, 2005

Another Reason Why The Banks Interchange Fee Should Be Zero (

The National Association of Convenience Stores magazine (July 2005) reported that "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."

The previous posting addresses the risk factor, this column focuses on technology.

As well-known entrepreneurs, Mitch Goldstone and Carl Berman, lead plaintiffs in the antitrust litigation against Visa, MasterCard and member banks also co-edit The Credit Card Interchange Report - This column provides a real-life experience to understand why Visa and MasterCard may be forced to disband its merchant interchange charges.

The nationally recognized business leaders operate an online boutique photo service( which recently created an entirely new business model for preserving generations of photos. Their new business, is the biggest news in the photo industry since the launch of digital photography. The company previously charged $5.00 to produce one high-resolution digital scan from a single photo; the process would take several minutes. Today, their service scans 150 photos of any size -- from wallets to 11x17 enlargements in just one minute. The charge is $49.95 for 1,000 photos; an entire shoe box of pictures is scanned within minutes and mailed back the same day for under 5-cents per print.

This same math applies to the credit card associations. With technology advancing at lighting-fast speed, each few months yields entirely new cost-saving techniques, yet for banking card transactions the fees keep rising?

Just one decade ago when merchants used bulky non-electronic credit card imprinters, the multi-page carbon forms cost a great deal and had to be mailed for processing. This took several days and incurred costly clearing and processing fees, which was why the interchange fees were initially established; it was cost-based.

Today, just as how the cost for digitally preserving photos was cut by Goldstone and Berman from $5 to 5-cents, so too have the costs for banks to process merchant payments. Yet, the latter service continues to face huge, unjustified fee increases.

Visa and MasterCard can learn a great deal from their customers like Goldstone and Berman. Many business services and products share similar cost-savings to lower rates while enhancing the benefits.