Saturday, January 21, 2006

Banks Should Study "Moore's Law" To Reverse Unbridled Fee Increases (

Several months ago, 30 Minute Photos Etc., lead plaintiff in the multibillion dollar class-action antitrust litigation against Visa, MasterCard and its member banks charged $5.00 to scan a picture to a digital CD. Today, that fee is low as just 5-cents. Technology has made this in-demand service super fast and much less costly. Within minutes of shoe boxes full of precious family pictures arriving, it is processed, scanned and prepared for same-day return delivery across the country.

Why is this so important and relevant to the interchange litigation?

All entrepreneurs understand, especially those involved in technology that we owe a great deal to Intel's cofounder. In 1965, Gordon Moore saw the future and fathered the popularly known prediction of "Moore's Law". This states that the number of transistors on a chip doubles about every two years. Over time, this observation about silicon integration has fueled the worldwide technology revolution which Moore's Law helped build.

The result: more performance, less cost. To personalize this, today your entire shoe boxes with generations of family photos are preserved on digital CDs, index prints and reprints ordered within minutes. Credit also goes to another technology leader, The Eastman Kodak Company and its cutting-edge high speed scanning and Kodak Image Capture Software. This is the engine that powers 30 Minute Photos Etc. and offers an ideal example of how methodically Moore's Law works. From $5.00 to 5-cents, and from what would have taken several days to now scarcely a few minutes to complete an entire order.

While Moore's Law deals with technology and decreasing costs, the financial industry slipped past this lesson and proven rule. And, merchants and retail customers are paying billions of dollars every year because of it.

Instead of practicing Moore's Laws, Visa and MasterCard employee "More's" Law. Seemingly, everything to them costs more - or at least they charge more. When 30 Minute Photos Etc. was founded in 1990, we were just a local retail photo center in southern California. Back then, like all retailers, we ordered bulky, multi-page charge card carbon receipts and used cumbrous credit card imprinters that we swiped the card through in order to transact a charge card. Afterwards, each receipt was bundled together and mailed out of state for processing. The clearing and reimbursement process took days. Back then, the interchange fees were cost based and there were just a handful of separate charges which were a fraction of what it is today.

Today, the actual cost to transact a single electronic charge transaction costs nearly the same at 30 Minute Photos Etc. as it does for Wal-Mart. The infrastructure, technology and ease-of-use makes the actual cost to operate this payment system nearly irrelevant when all the other bank fees are weighted in. But, to companies like MasterCard, it is "priceless"and constantly rising.

To better explain: now that the photo center's business is nationwide, and like most Ecommerce transactions, we are entirely beholdened to charge cards for transacting business. When an online photo order is submitted to, we have no idea what our cost is. Did the customer use a debt card? Signature Visa Card? Affinity / frequent flyer card? Foreign bank card? Or, one of the other choices that now represents nearly one-hundred separate interchange fees? It is anyones guess.

What all Ecommerce businesses have in common is discrimination. Purchase a box of Mrs. Fields cookies online and they are forced to pay a wide variety of interchange fees, but if you stop by their retail store and write a check, there is no charge. If you use a debit card from Canada's PIN Network in that nation there also is no fee. Yet, while restaurants can insist that customers pay in cash, online merchants are discriminated against. They face these unbridled, price-fixed, bank fees which on low margin sales, often yield rates more than their entire net profit.

Because The Credit Card Interchange Report - has quickly grown to become a leading voice for merchants and regular contributor to the media, our call to stop this hidden tax on customers is gaining momentum every day. This is why we share this commentary with all our readers. We also hope that Visa, MasterCard, the banks, their agents, public relations, political advocacy groups and planetary-sized teams of lawyers who regularly visit study Moore's Law too educate, accelerate performance and exponentially decrease merchant interchange fees. is just a single example which represents millions of businesses that used technology to transform its business. Now, the banks also need to catch up and seamlessly integrate technology to speed up payment transactions and lower the costs. Even in the
less technologically-advanced nations of Brazil and Italy, their interchange fees are just half the rate in the U.S. and they face greater levels of fraud and costs.

Consider what Intel shared: Today, people find parts of their lives enhanced by technology. Families and friends who connect in an instant, sharing photos, playing games and trading advice, all while overcoming great distances and time differences. Doctors who access the Internet in the examining room, verifying the latest updates on chemical reactions, alternatives, and availability of your elder parents' prescriptions. On-the-go parents who can carry games and other digital entertainment for their younger children on sleek, light and portable devices that also allow them to call their older, free-spirited teenagers to check on their well-being. Entrepreneurs who launch new business models, ultimately enabling new market segments, companies, products and services, and employment sectors to grow.

Underlying and enabling all these experiences are advancements in technology as defined by Moore's Law ... So, rhetorically, why are Visa and MasterCard still practicing science fiction with "More's" Law?

Instead of working with their two core customers - merchants and consumers - they are using politics, high-powered lawyers and public relations to protect their fiefdom and thwart off what inevitably helps every other business model.

Beyond interchange fees, a study of ATM fees is another reverse-study of Moore's Law. Banks charge upwards of $2 to draw money from your account. You may also pay fees to another bank involved in the transaction. Soon, more banks will curtail waiving certain other fees. These add up. reports that the bank's earn more than $4.3 billion from these excess fees. Reuters reported that "in South Carolina, where Wachovia, Bank of America, BB&T and Carolina First Bank account for about half of the banking market, customers can feel the effects. For example, Bank of America, which has 16,700 cash machines worldwide, reported in 2004 that card fee income increased by 50 percent over 2003 to $4.5 billion. And through the first nine months of 2005, the bank was on pace to surpass the 2004 total, reporting $4.2 billion in fee income."

The banks argue these services are a benefit and the fees are for the convenience of using their services. This is much like when you purchase tickets to a concert or sporting event from Ticket Master and they tack on a myriad of charges; one is even identified as a "convenience fee".

In the real world, businesses cannot charge such exploitive fees. For instance, when 30 Minute Photos Etc. invented and launched its new
high-speed photo scanning service, we used technology and the lower fees to our advantage. Customers embraced the fact that due to technology we no longer charge $5.00, but rather as low as 5-cents to instantly scan and preserve their generations of family pictures with conversely, while banks explain their ATM fees are a necessity to cover "out-of-network ATM's," consumers describe it differently: unconscionable profiteering.

Unlike the automated interchange payment system network, there are steep costs for servicing and maintaining ATM machines. But, even so, to charge a mom - urgently rushing out to an ATM to get money to buy last-minute groceries for her family - as much as $4.00 in ATM fee is, like interchange fees ... WayTooHigh