Hidden interchange fees on debit-cards impact retailers and consumers
Irvine, CA (February 3, 2006) -- While debit-cards instantly deduct funds from a consumer’s bank accounts, retailers face predatory schemes by Visa and MasterCard which charge merchant interchange fees well above competitive levels. Even though the transaction fees are nearly ten-times less for debit cards, where customers enter their PIN (personal identification number), the banks are using their market power to force retailers to unwittingly accept those higher-cost, signature-verified debit cards.
Most retailers, especially small businesses are unaware of steep costs when accepting some debit-cards. On occasion, the assumed flat rate interchange fee of $0.50 - $0.75 cents may be riddled with substantially higher, electronically substituted costs. Instead, merchants might be forced to pay a percent of the sale -- averaging 1.70% in the U.S. or higher, based on a myriad of conditions. "This $25 billion annual interchange cost is not just a hidden tax on consumers, but also on merchants who often have no clue what they were charged.
This well-protected scheme by Visa and MasterCard even redirects debit-card fees to supracompetitive levels," explained Mitch Goldstone.
As lead plaintiff and class-representative, Goldstone, along with Carl Berman, also co-edit WayTooHigh.com -- The Credit Card Interchange Report [http://www.WayTooHigh.com which provides international daily updates on the antitrust litigation alleging that Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, J.P. Morgan, Chase, Fleet Bank, Capital One, and other banks engage in illegal, collusive practices by setting interchange fees. A recent article from WayTooHigh.com -- The Credit Card Interchange Report noted the "Payment of Choice" slogan seems to benefit Visa and MasterCard rather than merchants and consumers.
As a retail and Ecommerce merchant, Goldstone explained "when consumers present his company with Visa or MasterCard-branded debit-cards, and when the transaction is processed for PIN authorization, it might not be completed. However, if merchants swipe the debit-card through their electronic terminals, the transaction will be successfully completed at credit-card rates. The reason: debit-card issuing banks may impose a daily limit on some PIN-based transactions, even if the bank balance is greater than the limit." While banks promote debit-cards as a smart way to budget money -- you cannot spend what you do not have -- the benefactor seems to be Visa and MasterCard.
Here is why:
1) To personalize what he calls "a bank-sponsored scheme," Goldstone profiled a customer experience who used their debit-card at his Irvine, CA-based company, 30 Minute Photos Etc. The nearly $400 customer transaction was declined due to a daily $300 card limit; however, the issuing bank explained that funds were available. For larger transactions, the banks' market power may require non-debit card processing. In the above case, the bank representative requested that the card be transacted as a Visa charge-card. It was then successfully processed with funds instantly deducted from the customer’s bank account. Also, rather than paying a merchant interchange fee of under a dollar, the merchant charge was nearly ten-dollars -- even though processing the transaction as a debit-card with PIN-based authorization was more secure.
2) Another recent example involved a rechargeable MasterCard debit-card. The customer did not know their PIN number and explained that none was provided. Therefore, rather than a flat interchange fee, 30 Minute Photos Etc. was forced to swipe the card as a charge card and although the full amount was instantly deducted from the cards pre-paid value, the merchant interchange fee was charged at the higher percent-of-sale rate.
These incidents mark just one of the more than two-hundred separate commentary and news postings available at WayTooHigh.com - The Credit Card Interchange Report. Narratives on Visa and MasterCard’s unbridled greed are updated daily.
As well-known entrepreneurs and leaders in this battle - joined by millions of businesses and consumers against the banks - Goldstone and Berman are intent to educate merchants and consumers about these hundreds-of-billions of dollars in what they claim are generated from illegal price-fixing. Goldstone explained that "Visa and MasterCard remain nearly silent on the interchange wars even though it is shaping up as the most consequential and economically important financial news story of 2006.
MasterCard's general counsel, Noah J. Hanft, remains cloaked deep within corporate walls cemented shut from the realities of honest facts. My opinion is that Mr. Hanft is the one who is misguided, protecting an illegal fiefdom and being paid by financial institutions which are not `pro' but, anti-competitive."
Even in Torino, Italy -- home to the Winter Olympics -- the average merchant interchange fee is just 0.70%, while the rate in Los Angeles, CA is 1.70 percent.
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30 Minute Photos Etc., founded in 1990, is regularly featured by the national media. The company operates a retail photo center, based in Irvine, CA, 30minphotos.com and ShoeboxReprints.com, a national online boutique photo service. Company president, Mitch Goldstone will address the International Photo Marketing Association's national convention in February. In addition to co-editing WayTooHigh.com -- The Credit Card Interchange Report, Goldstone and partner, Carl Berman are also class representatives and lead plaintiff in the multi-billion dollar antitrust litigation against Visa, MasterCard, Bank of America, Citigroup, JP Morgan Chase, Wachovia, Wells Fargo and other major banks for alleged credit card merchant interchange price-fixing. More info available at: WayTooHigh.com -- The Credit Card Interchange Report.
[source: WayTooHigh.com]
