Wednesday, January 25, 2006

That's a Lot of Dough-Nuts (

During a recent fill-up at Chevron, placards promoting the use of credit and debit cards to pay for two-bucks worth of coffee and donuts clearly drove home the merchant interchange issue.

"Just put it on the card," is the promoted message.

It is one thing when you use your Priority Club Rewards Visa Signature card (r) at Cartier. But, at service stations, fast food restaurants and the million of other businesses which ring up small transactions, Visa, MasterCard and the banks are using their market power and making bank on the backs of consumers and merchants.

Take a two-dollar purchase with your debit card, for instance. Typically, there could be a flat $0.50 - $0.75 cents in merchant interchange fees to process that order. For a credit card transaction, there could be a minimum charge plus a percent of the total sale which could be upwards of a dollar under certain processing plans. If merchants have slim margins to begin with, this means that ... well, you understand. This is a lot of "'dough'-nuts" and high degree of profiteering enjoyed by the banks.

Indeed, as the signage promotes: "Sweet Meal, Great Deal," but for whom? In this case, the promotion was not for a bank-branded card, but customers will use Visa and MasterCards too. Millions of companies do have customers who charge for even a cup of coffee: think Starbucks.

Retailers explain these credit card associations' charges as colluding to set artificially high interchange fees paid to the banks. The banks cannot legally get together and fix these prices, which they do as alleged in our antitrust litigation. Yet, MasterCard and Visa continue to explain that the lawsuits are without merit. These bank-owned card associations point to the benefits of the the value of the services receive. That they are right about: there is great value, but the benefactors are the banks.