Wednesday, February 01, 2006

“Payment of Choice” Slogan Seems to Benefit Visa® and MasterCard®, not Merchants or Consumers (

We already know that Washington lobbyist, Susan Molinari and the group she leads, Americans for Consumer Education and Competition® "enjoys the financial support of Visa USA."

She also broadcasts that debit cards are a "wise budgeting tool" and the"payment of choice". Well, that may be so for the banks but seemingly not for merchants or consumers. The former U.S. Congressperson and former TV broadcaster issued press releases, including one explaining that an overwhelming majority of consumers believe imposing check out fees on those who pay with plastic is an unfair practice.

We agree. But, at the expense of consumers and merchants. Cardholders who pay with cash or checks are subsidizing the costs incurred by merchants from those using debit and credit cards.

As a retail and ecommerce merchant, we too noticed that when consumers present a Visa or MasterCard®-branded debit card and when the transaction is processed for PIN authorization the transaction might not be completed. Whereas, if the merchant swipes the debit card through the electronic terminal, the transaction will be successfully completed. 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 - just like with ATM's. But, if the debit card is swiped as a signature transaction, the consumer has use of their full balance on deposit with the bank.

One example was a customer who last week presented 30 Minute Photos Etc.® with their debit card for a transaction of about four-hundred dollars. They used the PIN pad to enter their number. Seconds later, the terminal beeped with the message "Invalid Transaction". The customer was confused and embarrassed because they knew there was more in their account than the total for this transaction. We tried the transaction again with the same result. The customer then called their issuing bank. Customer service explained they indeed had enough funds but that there was a three-hundred dollar limit on their debit card. Funny, we don't remember Susan Molinari telling us about this limit?

While Ms. Molinari and other advocacy groups paid by the banks promote debit cards, the result for larger transactions is that 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 card and it was processed. However, the customer was still confused. Because of our national leadership in this interchange war, that customer was familiar with the issues and asked why processing the transaction in a less secure way (signature card ) rather than the more protected PIN entry method costs merchants (and therefore the consumers too) more money?

Answer: The banks earn more money from signature-based than PIN-based transactions. On this single four-hundred dollar transaction the PIN (more secure) debit card transaction would cost the merchant less than one-dollar in interchange fees. However, for the signature-based transactions we were charged nearly ten-dollars.

While publicly silent, the banks are beginning to take notice of this merchant and consumer revolt and interchant war. Seemingly, twice a year the bank-owned credit card associations raised rates; but recently this trend was paused as they are feeling the heat generated from their unbridled greed.

However, MasterCard's® general counsel, Noah J. Hanft, remains cloaked deep within corporate walls cemented shut from the realities of honest facts. Our 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.

So, whose "payment of choice" is it?