Friday, March 03, 2006

"Free" Travel Awards Cost Merchants (

If a customer earlier today at was accurate, they wanted our retail and online boutique photo center to complete their debit card transaction as a signature credit card so they could accrue airline mileage. Even though it was a debit card and their account would instantly be deducted by that transaction, we scanned the card at the much higher percent-of-sale rate so the customer could earn mileage; the transaction cost us several dollars rather than just about 50-cents.

If this is accurate, the credit card issuers are conditioning consumers to force retailers to pay substantially higher interchange fees. By using the allure of frequent flyer awards, the cardholders become Visa and MasterCard's moll to further enrich the multi-billion dollar interchange scheme. The banks promote the use of debit cards to help consumers budget their money, but the result is that merchants then are asked to process the card at much higher rates so frequent flyer affinity points can be earned.

Whether a customer insists that their debit or check ATM card be used as a charge card, or if they explain that they forgot their PIN number, the retailer and eventually the consumer ends up paying for the banks' windfall profits.