Is it time to take the fight over interchange fees out of the courts before it does real harm to the credit card associations and their member banks?
Consultant Steve Mott answered that question with a resounding “yes” on Monday as he warned banks they had better find a voice for themselves, bring this debate out into the open and let cooler heads prevail before ongoing litigation and impending merchant defection to non-bank payment products makes the situation even more adversarial.
Until the issues can be openly and ingenuously examined and thrashed out to the satisfaction of all stake-holders, the prognosis could be calamitous,” said Mott, principal of Stamford, Conn.-based consultancy BetterBuyDesign in a BAI Payments Forum session entitled “Interchange – Where Do the Opportunities and Challenges Lie?
”The battle over growing interchange income from signature-based card products has pushed the associations and several of their member banks into a bruising string of legal battles with merchants. Mott suggested that an independent arbiter – perhaps the Fed – referee an examination of costs and value for credit card payments and “start a process of rationalization before merchants abandon bank networks and products en masse and the pricing of payments plummets below levels from which financial institutions can sustain any profits.”
Mott said interchange levels have grown from 1.2% of purchases in 1990 to 1.75% today and now account for $24 billion in annual profits, which continue to grow rapidly. Card-issuing banks contend they need these fee levels to continue expanding market acceptance and especially to compensate themselves for the resources they pour into increasingly popular rewards programs.
But merchants argue that broad market acceptance has already been achieved – few of them can afford NOT to accept bank cards for payment – and there’s no incremental benefit from rewarding consumers to use particular brands of cards, since most consumers who get the rewards are non-revolvers and therefore don’t need credit to make their purchases.
[source: BAI: Banking Stratagies]
