Wednesday, May 31, 2006

Are Credit Card Supported Frequent-Flyer Programs Broken? (

Millions of retailers pay higher merchant credit card fees when customers specifically charge using their affinity, frequent flyer award cards. This means that card-holding travelers and retailers are equally engaged in a fierce battle again the card issuers.

USA Today (May 31) reported that frequent flyers are turning a "skeptical eye to the skies." These loyalty programs are an all-around hidden tax that keeps on rising. Now, the airlines, like the credit card companies are facing growing customer unrest. While businesses are forced to pay higher merchant interchange fees for affinity cards, many do not even know they are also being taken on a ride when customers cash in their awards.

While many travelers are satisfied with the frequent-flyer awards, "Rolfe Shellenberger, now a retired corporate travel consultant in Palm Desert, Calif., understands frequent-flier programs from the inside out." As reported in USA Today, "The former marketing executive who designed the industry's first frequent-flier program at American Airlines, complains that airline managers now view them as profit centers rather than a means to promote brand loyalty ... [and] their purpose now is to generate more revenue."

Consumers pay twice. Once from the increased hidden tax paid to retailers and then again when they try to redeem the award mileage, as most are unused.

Since April 2005, Visa® and MasterCard® charge merchants a premium when their customers use these loyalty cards. This is just one of the nearly one-hundred separate merchant interchange fees. The value of the affinity accounts are cemented in a growing pool of waste. We read in the USA Today article that, "[t]heir accounts are brimming with 14.2 trillionmileage points, up from 6.6 trillion at the end of 2000, estimates Randy Petersen, publisher of InsideFlyer magazine and Frequent fliers earned 2.7 trillion credits in 2005 alone."

[source: with reference to USA Today (May 31)]

Tuesday, May 30, 2006

"MasterCard: Charging Ahead" (Kiplinger)

"Gas Customers Rage About Pump Prices" (USA Today)

Monday, May 29, 2006

MasterCard IPO Shifts Risk from Banks to Investors (

By Martin H. Bosworth - ConsumerAffairs.Com

May 29, 2006 - When the world's number two credit card issuer debuted on the stock market on May 24, 2006 with an initial public offering (IPO) of $39 a share, and then swelled to $46 a share in second-day trading, analysts hailed MasterCard's move as the largest IPO of the year, and a sound triumph for one of the world's best-known brands.

But investors should think carefully before putting too much of their money into shares of MasterCard, as the company's move is designed primarily to respond to the series of lawsuits launched by merchants over the high "interchange fees" MasterCard and card-issuing banks charge to process plastic transactions.

By the company's own admission, the principal effects of the IPO will be to "redeem" shares of MasterCard held by the 1,400 member banks that issue its card, reducing their liability in the event that the merchant lawsuits are successful.

MasterCard plans to use $650 million of the funds raised by the IPO to add to its "war chest" in order to defend against the regulatory challenges from the lawsuits.

Investors who buy up shares of MasterCard hoping to turn a quick profit from the company's massive public profile may be left holding the bag. Analyst Howard Bernstein told Fortune magazine on May 17th that the cost of the merchant lawsuit litigation could exceed $1 billion dollars easily.

Merchants such as 30 Minute Photos [Etc.]' Mitch Goldstone, a lead plaintiff in the class-action lawsuits, claims that the high processing fees banks charge [some] retailers to process card transactions wipe out almost any profit they can earn when consumers use plastic.

Goldstone noted that credit card companies and issuing banks reaped huge profits from the processing fees charged when drivers bought gas with credit and debit cards during 2005's holiday traveling seasons, a process expected to repeat itself this year.

"As gas prices double, seemingly, so are credit card merchant interchange fees - and then some," he said on his blog,

"As it costs upwards of sixty dollars to top off a car's tank, consumers are more inclined to pay with credit; they often don't otherwise have enough have cash as they did when it cost twenty or thirty dollars for gas. This means, the banks' windfall profiteering is accelerated and enhanced at the expense of drivers across the nation," Goldstone wrote.

The wave of merchant lawsuits isn't MasterCard's only worry. Bank of America is considering issuing its own credit card and acquiring or purchasing its own payment processing network, which would significantly cut into MasterCard's profits.

In February, Discover Financial, issuer of the Discover-branded credit cards, announced it was issuing its own debit card brand in order to further encroach on the turf long held by MasterCard and Visa.

Also, an increasing number of American cardholders are canceling their cards and closing their accounts, forcing MasterCard, Visa, and the banks that issue plastic to aggressively pursue foreign markets. That could make the merchant lawsuits even more devastating if they are victorious.


Friday, May 26, 2006

"Good Morning America Examines Retailer’s Pain at the Pump" (NACS)

Thursday, May 25, 2006

"Windfall Profits for the Credit Card Companies This Weekend:" (Merchant Payment Coalition)

Windfall Profits for the Credit Card Companies This Weekend: Credit Card Companies to Rake in Millions This Weekend at the Pump at the Expense of Holiday Travelers

WASHINGTON, May 25 /PRNewswire/ -- The Merchants Payments Coalition (MPC) said today that with more than 31 million Americans driving for the Memorial Day holiday, credit card companies stand to make millions this weekend from credit card fees at the gas pump.

In a recent survey by the Travel Industry Association and AAA, it was estimated that 31.4 million Americans are expected to drive 50 miles or more from their homes this coming weekend. Consumers know they are paying near- record high prices for gasoline from coast to coast, but what they don't know is that credit card companies are raking in windfall profits as gas prices rise. When they go to the gas pump this weekend, they will be paying credit card companies a massive "hidden" credit card interchange fee that goes up each time the price of gas goes up.

Last year, credit card fees cost the convenience store industry, which sells an estimated three-quarters of all the fuel purchased in the country, a staggering $5.3 billion, making the credit card companies silent profiteers as gas prices escalate.

"We share consumers' frustrations over high gas prices. When prices rise, credit card companies actually charge retailers more per gallon for selling gas, a cost that affects every American purchasing fuel," said Hank Armour, president and CEO of the National Association of Convenience Stores (NACS) and a member of the MPC. "In fact, Visa and MasterCard are often making more on each gallon of gas sold than the retailer actually selling the gas. That's wrong."

Credit card interchange fees are a percentage of each transaction -- sometimes accompanied by a flat fee -- that Visa and MasterCard banks collect from retailers every time credit or debit cards are used to pay for a purchase. This fee averages close to 2 percent. Total credit and debit card interchange collected by Visa and MasterCard in 2004 amounted to $26.7 billion, according to the Nilson Report, a business magazine that covers the credit card industry.

"These credit card interchange fees unnecessarily cost American consumers billions of dollars every year, making the credit card companies silent 'winners' when gas prices increase," said Armour. "And the most egregious part about this particular credit card fee is that unlike the endless list of other credit card fees such as late fees, over-the-limit fees, inactivity fees, and balance-transfer fees, most American consumers don't even know they are paying it."

"The amount of credit card interchange fees collected has nearly doubled over the past 10 years despite the fact that the technology used to process credit card transactions has become more efficient and less expensive," Armour said. "Congress and other state and federal regulatory agencies should closely examine all of these credit card fees. Like all consumers, we are fed up with these fees -- which help pay for Visa and MasterCard's endless junk mail and solicitations to target vulnerable teens and seniors with credit card come- ons."

The Merchants Payments Coalition is a group of 20 trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that accept debit and credit cards. MPC is fighting for a more competitive and transparent card system. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees.

[Source: Merchants Payments Coalition]

Wednesday, May 24, 2006

"Class Action Takes Aim At MasterCard IPO" (Competition Law 360)

"As MasterCard Inc. debuts on the New York Stock Exchange as a public entity Thursday, the second-largest credit card company is already facing a new challenge over its initial public offering from an ongoing lawsuit."

[subscription required]

"Credit Card Fees Hurt Businesses" (

Saturday, May 20, 2006

"Is MasterCard IPO Really a Bargain?" (WSJ)

The Wall Street Journal on May 20th (subscription required) reported in its "Breaking Views" column that "regulatory and legal clouds are potential downsides [to the IPO]."

Additionally, the WSJ opined that "Far more worrying is that MasterCard's revenue model is under threat. Regulators in Europe are claiming its fees should be much lower. Australia's regulators already have forced a 40% fee cut. In addition, the company faces about 40 class-action lawsuits from U.S. retailers. They claim that a cartel of credit-card providers and banks colluded to set excessive fees. In a settlement with Wal-Mart three years ago, MasterCard stumped up $1 billion over 10 years. That's almost 20% of the company's likely market value.

If MasterCard escapes from under these dark regulatory and legal clouds, it might provide an outstanding investment opportunity. But the costs of the lawsuits are unfathomable, and the regulatory filings for the IPO provide little guidance. These are risks many investors won't accept -- but for everyone else, there's MasterCard."

[source: From the WSJ, May 20, page B16]

Friday, May 19, 2006

"How Priceless Is This IPO?" (Forbes)

Thursday, May 18, 2006

"MasterCard IPO: Not So Priceless" (CNNMoney)

Wednesday, May 17, 2006

What Do Global Warming and Big Banks Have in Common? (

Coincidently, on May 24th, the same day that the bank-owned MasterCard International Inc.® is preparing to unload its liabilities onto the public, An Inconvenient Truth will open in theaters across the nation.

This film, like others we previously wrote about draws attention to important global issues. Having received three standing ovations at the Sundance Film Festival, the subject about a crusade to halt global warming shares parallels to unbridled interchange fees. Both are multi-billion dollar issues which are shaped around the inequitable force behind big business.

Watch the trailer.


MasterCard's® Legal Bill Could Be $26 Bln (from report in CardLine)

( - The Credit Card Interchange Report) -- CardLine on May 17 reported that Bernstein Research analyst Howard Mason said MasterCard's® legal bill could reach $26 billion from interchange and other litigation.

The potential damages are being called a "tsunami" which would affect not just MasterCard®, but its much larger partner, Visa® - member banks own both payment associations. see MasterCard® and Visa® as partners because the organizations are both owned in many cases by the same financial institutions.

Even one of their leading corporate backers, Bank of America®, which is their third largest shareholder with a nearly 7% stake is looking to distance itself by announcing its interest in launching a separate payment card service. - The Credit Card Interchange Report thinks that even boozy investors risk foiling the planned IPO once they evaluate the "Risk Factors."

According to CardLine, Mason estimated that with treble damages, MasterCard's exposure from the interchange litigation could be high as $20 billion. This overshadow's MasterCard's® planned $2.6 billion IPO next week. Keep in mind, these damage estimates are just attributed to MasterCard. The antitrust litigation is also locked on to Visa and many of its member banks too.

[Source:, with reference to report in CardLine]

The Two Sides of Wells Fargo® - Some Non-Profits Pay Upwards of 5% for Interchange Fees (

This posting is gutsy and provocative, but provides another opportunity to better understand the banks unbridled interchange fee cartel.


We salute The Human Rights Campaign which regularly recognizes Wells Fargo & Company® for reaching 100% on the Corporate Equality Index. This ranking identifies smart companies that advocate full protections in the workplace for LGBT employees. [Other banks also support diversity issues and compassion, including Chase®, Citigroup® and Washington Mutual® (all are named defendants in the Interchange antitrust litigation) and are HRC National Corporate Sponsors].

There is no question that the San Francisco-based financial services company honestly is deserving of this important distinction. [In addition to co-editing, as co-owners of 30 Minute Photos Etc. we have closely worked with leading Fortune 500 firm's, including IBM® and The Eastman Kodak Company® to foster better support for diversity].

As a model for celebrating corporate diversity for many minority groups, Wells Fargo's® advertisements and its Diversity Council provide the proof: the bank "fosters a culture in which all people and their individual differences are not only accepted, but celebrated! Our business atmosphere promotes inclusive community values, presents career opportunities to a diverse work force, as well as provides support to the GLBT [sic] community we serve."

This important ranking is also an important marketing tool. When organizations and businesses decide which bank to choose, the ranking does play a role. But, make no mistake, no matter what type of company you have, including non-profits, Wells Fargo® and its support for social consciousness is to a degree diminished in relation to the profits reaped from fees, like interchange. In some cases, the interchange fee charged to these non-profits can reach nearly 5% of the total contribution.

Nonetheless, just a few weeks ago, the bank via it's Well's Fargo Merchant Services®, again, brazenly raised Interchange fees. While Wells Fargo® explained that "Visa® and MasterCard® are changing certain credit card interchange rates and qualifications," they are talking about themselves. Wells Fargo® is both an issuing and acquiring bank that is a member of both Visa® and MasterCard®. While apologetic and holding the two leading payment processing services responsible, remember, the bank is a co-owner of both card associations.

The following abstract is from a typical merchant notice to amend the bank's processing agreement:

Dear Valued Merchant,

At Wells Fargo Merchant Services®, it is our mission to keep our customers updated regarding changes that affect their merchant card accounts.... Thus, please note that Visa® and MasterCard® are changing certain credit card interchange rates and qualification structures...

All changes will become effective April 1, 2006...

Your discount rate will increase by 0.30%.

The Qualified Rate for MasterCard® Credit and Debit and Visa® Credit and Debit is 3.1190%.

Effective April 1, 2006, your Non-qualified Surcharge will be increased by 0.75% to 1.50% per transaction.

The three page notice included a separate two page revised "Debit Network Fee Schedule" which is significantly complicated to understand and identify the actual interchange transaction charges.

On one side, the bank advertises that "we want every LGBT customer who walks into Wells Fargo to succeed financially." Then they charge a basket of extraordinary interchange rates to the non-profit groups which accept payment cards from its members; the fraud and other service costs are lessened because the contributors are less likely to not pay their bills. Similar diversity programs are in place for many other minority group.

These anti-competitive interchange fees plunder money donated to non-profit organizations. Even financial supporters to these non-profits may not realize that when they use their credit and debit cards to make contributions, often several percent off-the-top go directly to the banks. With nearly one hundred separate interchange fees, it is anyone’s guess just how much from each donation makes its way back to the group.


Tuesday, May 16, 2006

"Credit Card Fees Hit Gas Stations Hard" (Medill News Service)

"Visa First-quarter US Volume Up 17.4 Pct to $318.2 Bln" (Reuters)

Most Popular Recent - The Credit Card Interchange Report Postings (

Largest Planned IPO Since Google has No Safety Net

Will "Risk Factors" Doom MasterCard's® IPO?

"MasterCard's Legal and Regulatory Risks Threaten ... Its Entire Business Model" (BW)

Visa® and MasterCard® Get About $1.50 Per Fill-up

Citigroup® , Bank of America® and HSBC® scheme with American Express

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

"Erin Brockovich" Inspiration to

Consolidated Amendment to Class Action Complaint

What’s the Difference Between Some Banks and Drug Dealers?

MasterCard Inc. IPO, "The Ultimate Hedge Against Litigation"


Bankers Oppose RBA on 'Zero Fee' (The Australian©)

"Credit Where It's Due, No, It Won't Be Priceless" (Click here for link to Barron's®)

[See above link to the Barron's® article, "Credit Where It's Due..."] Commentary

Did we miss something?

It was surprising that the May 16 Barron's online profile about MasterCard's® planned IPO did not mention in detail the merchant antitrust litigation. From reading the article, potential investors might at first be intoxicated by the perceived value of the MasterCard® brand, but will quickly sober up once they read the "Risk Factors" which might include a complete loss of shareholder investments.

From the recent articles on the IPO, in our opinion, it seems that the banks might be using this opportunity to cash out of their potential liability. Further, as reported in BusinessWeek®, the company is preparing to spend upwards of $650 million to fight the interchange suits.

[Source: Commentary -]

Ed note: Disclosure. From time-to-time we post updates to remind readers that the co-editors of - The Credit Card Interchange Report are co-owners of 30 Minute Photos Etc., a retail and nationwide online boutique photo service which is represented as lead plaintiff in The Payment Card Interchange Fee and Merchant-Discount Antitrust Litigation. These postings are independent and represent the opinions and views of Mitch Goldstone and Carl Berman. Named defendants in the class action suit include Visa®, MasterCard®, Bank of America®, Citigroup®, JP Morgan Chase®, MBNA®, Barclays Bank®, Wachovia Bank® and other member banks.

MasterCard International® Responds to U.S. Merchant Interchange Lawsuit (Click here for link to MasterCard® website)

In addition to the above headline link, MasterCard® has two other interesting links on its website; one which seems to be forged in part from the 343 postings below. While pleased they are regularly reading this website, it appears the company created its "Myths and Facts" replies based on the assertions and postings from - The Credit Card Interchange Report.

We stand by our facts. And, here is just one of the links, which isn't from us, but Businessweek.

Then, they offer "
Industry Prospectives." While we have 343 commentaries, articles and news updates that span well over a year, MasterCard® has but two. Only two. The silence is deafening and you can hear the crickets chirping. Besides, we previously posted and reviewed those two prospectives within the below postings.


Monday, May 15, 2006

"Plastic Under Attack" (Fortune)

From Fortune Magazine, May 29th edition:

,,,"As for MasterCard's post-IPO prospects, Sanford Bernstein analyst Howard Mason says that the lawsuit could be a huge cash drain. Mason points out that the closest settlement precedent was in 2003, when MasterCard paid merchants $1 billion regarding alleged antitrust violations related to its debit cards.

In a May 8 report, Mason wrote that the liability this time "could be meaningfully higher." That's because the current suit relates to MasterCard's credit and debit business - three times the size of its debit business alone.

"MasterCard's legal liability could exceed its current book value of $1.3 billion," he notes.

Of course, by taking it public the bank consortium that has long owned MasterCard will not have to pony up the full cost of any settlement. That task will fall to shareholders. And unlike MasterCard's long-running ads, that's anything but priceless."

[Source: Fortune Magazine]

Europe's Card Fees Eyed (

Saturday, May 13, 2006

"Retailers Taken by The Leading Card Association" (

The "Life Takes Visa"® advertisements explain that the Visa Signature® cards provide access to exclusive cultural and sporting events, plus preferred seating at Broadway shows and even exclusive culinary events. All this when you use their "reward cards that reward you for living."


The advertisements don't explain that along with rewards are costs. Merchants are forced to pay even higher interchange fees for processing these premium cards. So, not only are the cardholders, but also the retailer being taken on a ride. Retailers can easily reword the slogan from "Life Takes Visa"® to "Retailers Taken by Visa."®


Competition Cuts Cost of Wiring Money (Washington Post)

Why exactly are merchant interchange fees so high and over the years continuing to rise?

In a related business, The Washington Post reported on May 12th that "the cost of sending money around the world has dropped significantly in the past five years, saving immigrants nearly $5 billion in fees, according to a report released today by the Inter-American Development Bank and the Annie E. Casey Foundation."

The article explained that "prices have been driven down with the help of competition, said Manuel Orozco, author of the report and a senior associate at the Inter-American Dialogue in Washington. The fees charged to send money from the United States to Latin America have dropped from about 15 percent before 2000 to 5.6 percent last year, meaning the cost of sending $200 went from about $30 to $11."

This report strengthens the argument that merchant interchange fees are controlled by the banking cabal, and even though technology and fraud issues are factors that should be lowering rates, it isn't. While the fees to wire money decreases, interchange fees continued to maintain their record high levels. There is little competition in the credit card business, where Visa® and MasterCard® dominate the industry with a nearly 85% share of the market; even the banks which own Visa® also own and control MasterCard®.

[source:, with link to The Washington Post]

Tuesday, May 09, 2006

"Congress Asked to Step into Interchange Wars" (ATM Marketplace)

Monday, May 08, 2006

"MasterCard IPO Could Occur on May 24" (from Cardline)

An email message from CardLine suggests that the MasterCard Inc.® IPO might occur on May 24th and that their investor roadshow visits are now being scheduled. We wonder if the prospective investors read this BusinessWeek article?


Putting a Fresh Face Forward (The Orange County Register)

[ Ed note: 30 Minute Photos Etc. profile. The company, operated by co-editors of - The Credit Card Interchange Report , is lead plaintiff in the Payment Card Interchange Fee and Merchant-Discount Antitrust Litigation.]

After 16 years in business, photo retailer 30 Minute Photos Etc. opts for a new look at its Irvine location.

By JAN NORMAN - The Orange County Register

[photo caption: REVAMPING ITSELF OUT OF A RUT: Mitch Goldstone, right, and Carl Berman, owners of 30 Minute Photos Etc. in Irvine, are just about finished with a $100,000 facelift of their processing business, which now sports new photo kiosks.PAUL E. RODRIGUEZ, THE ORANGE COUNTY REGISTER]

There are two seemingly contradictory truisms in business. Customers like doing business with firms that have been around a while. And customers flock to anything new, fresh and different.

Mitch Goldstone and Carl Berman, owners of 30 Minute Photos Etc. in Irvine, are proud that their photo service has been open for 16 years. That should satisfy any customer's desire for longevity. Now, they have addressed the second truism. They just spent $100,000 to refurbish the store in a strip center at Jamboree Road and Barranca Parkway in Irvine.

30 Minute Photos Etc. illustrates the need for small-business owners to continually reinvent and update their enterprises if they hope to survive. Entrepreneurship is not for the cheap or rigid. People like to be associated with current trends. They like to see new colors fresh flooring and hand rails," says Mike Munz, a retail expert and member of SCORE, a business counseling organization sponsored by the U.S. Small Business Administration.

Goldstone agrees, pointing out that time takes its toll on every business. "After 16 years in business, it's time for a makeover. So many small businesses get stale."

There's another incentive for change. The photo industry has dramatically changed since 30 Minute Photos Etc. opened as a quick photo developer.

Goldstone and Berman invested in costly technology to remain profitable as consumers moved from film to digital cameras. They added Kodak Picture Maker and Preview & Select photo kiosks as soon as they were available. The owners added software and machinery to develop digital photos in 1999.

30 Minute Photos Etc. embraced the Internet with an e-commerce Web site that has brought customers from around the world.

When the shop opened in 1990, all its customers lived or worked within a couple of miles. Now just 20 percent of its business is that close.

"Years ago, photo labs were opened by hobbyists," Goldstone says. "Now we have to understand the Internet and Bluetooth technology." The store's newest whiz-bang service is a $60,000 document-imaging machine that can scan 750 photos in five minutes, digitize them and put them on a CD.

As much as 30 Minute Photos Etc. has kept on the cutting edge of photo technology, the shop had gotten, well, crowded. The windows were covered with neon signs and promotional posters. The interior was festooned with more posters and promotional offers and past advertisements.

A few months ago, Goldstone made a small effort to freshen the interior by painting one wall buttercup yellow. It didn't have the impact he hoped. "On Saturdays, the store was so packed with people it was confusing and messy," Goldstone says.

At the same time, Goldstone found a new self-service digital photofinishing kiosk by Lucidiom that he thought was much better than Kodak's kiosks. He ordered six for the store, a dramatic departure because Goldstone has been a cheerleader for Kodak.

That's when Goldstone and Berman decided to go whole hog into the makeover, hiring a designer to lay out the plans. They introduced the "new" 30 Minute Photos Etc. last week. The black sofa has been replaced by red leather chairs. The black counter, tile floors and buttercup wall are gone. In their place are a white counter, oak floors and light blue walls. White shelves are stocked with examples of new Lucidiom software that makes scrapbook pages. A flat-screen TV will arrive soon. Free bottled water and chocolate bars are intended to contribute to the shop's "Starbucks-like" comfort.

Goldstone is a tireless marketer for his business, managing over the years to get news coverage in the Wall Street Journal, the New York Times, The Orange County Register, magazines and television. So the most difficult part of the store makeover was removal of an entire wall of framed articles in which he and the store are mentioned.

"We can still have all the articles on the Web site 'in the news' section," he says.

So much of 30 Minute Photos Etc. business is online, it could survive without a retail location, Goldstone acknowledges. "But we are active in the community. This (makeover) will change the whole dynamic to bring more business into the store. I hope it will inspire other store owners."

[source: The Orange County Register]

Sunday, May 07, 2006

Background Reference to 30 Minute Photos Etc (from Rochester D&C)

[ Ed note: Like most online sites, One hundred percent of all ecommerce and mail order business is reliant on payment card transactions.]

New Kodak technology will know what you are looking for in hunt for old pictures

Ben Rand - Staff writer

(May 7, 2006) — The next chapter of digital photography as envisioned by Eastman Kodak Co. reads a little like a Ray Bradbury novel or the script of the 2002 movie Minority Report.

Kodak and others in the industry believe that in the future, you won't have to waste time trying to recall details of an old photograph. Your computer will tell you where and when the photo was taken, who was in it, even how old they were at the time.

And that, believe it or not, could just be for starters. Researchers across industry and academia are hard at work developing futuristic technologies that could transform digital picture-taking by enabling images to communicate useful information.

"The whole strategy for us in pressing the fast-forward button in this new chapter is looking at how we can break the mold of the old system ... so that consumers will be inspired to do more," says Pierre Schaeffer, chief marketing officer for Kodak's consumer digital photography group.

This vision of the future could mean that you would no longer have to search manually for pictures of your children — the PC or other device will do it for you. Need images or videos from your trip to Florida? Pictures from birthday parties through the years? A few clicks of the mouse will produce them.

The breakthrough applications could provide a critical boost to Kodak's plans for digital imaging. By making it easier to find and organize your images, the company believes it will generate new revenue through increased sales of items such as keepsake photo books, unique online photo-sharing services or products not yet imagined.

There is some urgency: Kodak last week reported a loss of $298 million during the first quarter, marked by a 10 percent decline in revenue from consumer digital photography.

A whole new world

Long talked about, but now on the verge of reaching the marketplace, the technologies — showcased to reporters in New York recently — are part of a research area known as "image understanding." Simply put, image understanding holds that pictures, like words, have no meaning without context — "the who, the what, the where, the when and, in some cases, the which and the whose," says Patrick Cosgrove, program manager for intelligent content and semantic understanding at Kodak.

As envisioned, those questions would be answered by high-level software that analyzes the telltale clues silently captured every time you snap a digital photo.

The research is currently focused on three main areas: recognizing people through their faces, identifying objects such as trees or basketballs and analyzing the background. The ultimate goal is not to gather information for information's sake, Cosgrove says, but to turn "data into knowledge."

He provides an example: In the future, digital cameras may routinely record the latitude and longitude of where the photo was taken through an internal global positioning system. By itself, that information isn't useful to the average person. But imagine if it could be used to sort pictures taken at a specific place, such as grandma's house, he said.

Kodak is not committing to a specific date when the technology will be widely available. If and when it is, the technology will more than likely not be a stand-alone item — rather, it will be found inside another product, such as a digital camera or a photo kiosk.

The company is not alone in pursuing this line of research, as a conference in Rochester will show this week. A dozen scientists from industry and academia will be talking about cutting-edge projects as part of "frontiers in imaging," at the George Eastman House on Thursday, part of the weeklong International Congress of Imaging Science.

Out of the box

Some projects, however, are closer to fruition. The company is marketing a new service aimed at creating a digital archive from the box of prints found in virtually every closet. The service, known as Scan the World, is built around a high-speed scanner and organizational software. Kodak is testing the service in Wegmans Food Markets on Latta Road in Greece and Penfield Road in Penfield. Since December, consumers have used the service to scan 75,000 prints.

The next generation will likely come with higher-level software that will organize pictures into the decades they were taken, based on analyzing the photo's size and shape and a scan of its watermark.

Scan the World is an illustration of an important change in the photo industry, said Jeff Holdsworth, photo category merchant for Wegmans.In the past, photo counters essentially acted as manufacturers, Holdsworth said. Consumers brought in film, and photo-processors made pictures. In the future, consumers will be in control and will direct the industry on what services to provide, Holdsworth said.

"The goal is to try to serve consumers by changing the way they access their images," Holdsworth said. Wegmans is testing a range of pricing: Scanning up to 40 pictures costs $19.99; at the top, consumers can have Wegmans scan up to 4,000 pictures for $199.99.

The bigger picture

The initial cost for the scan is only the beginning of the revenue opportunity, says Mitch Goldstone, co-owner of 30 Minute Photos Etc., a photo retailer in Irvine, Calif. Goldstone's store has been offering Scan the World since November. He says that once the shoeboxes are in digital form, customers are sending them to friends and family, who are then coming in for reprints.

He sees it immediately in the store. Goldstone will invite customers to view their images on an in-store kiosk. At first, he says, people go through their images quickly. "But then, they slow down and start to make prints," he said.

Goldstone is looking forward to getting his hands on the newer technologies. The ability "to have the software recognize faces, to have them archived by decade — it's extraordinary."

And extraordinary to more than just Kodak. Microsoft Corp. and Adobe Systems Inc., as well as major universities such as Rochester Institute of Technology, the University of Rochester and the Massachusetts Institute of Technology, have programs focusing on image understanding.

Microsoft, for instance, is promising enhanced photo organization and archiving in connection with the upcoming release of Windows Vista, the next-generation operating system. One of the goals is to make it easier for users to attach information to their images and be able to retrieve it using a range of software programs, said Ed Lee, digital imaging analyst for InfoTrends Research Group Inc. of Boston.

The value of the new technologies is far greater than just printed products. There is likely money to be made in helping consumers transmit their images electronically, Lee said.

And if pictures are considered "personal content," there may be opportunity in the cross-section with licensed content — for instance, inserting your portrait into a Boston Red Sox uniform and making a print, Lee said.

Taking shape

Business opportunities are just being formed, says Andreas Savakis, a former Kodak researcher, now an RIT professor of computer engineering.

"As people collect more and more digital images, the business case becomes stronger," says Savakis, who has collaborated with Kodak on several research projects at RIT.

One of the next frontiers may be enabling more of a grassroots exchange of photos, a top industry analyst says.Today, sharing photos online with large groups requires the use of a central repository — a service such as or It would be a lot easier to have a system "where you say, 'I'll send you my files, you send me yours,'" said Alexis Gerard, publisher and founder of the Future Image Report, a California-based industry researcher.

That was exactly the experience of Bob Witeck, chief executive of a Washington, D.C., marketing communications firm. Witeck used Scan the World offered by Goldstone's store. He sent a box of images to Goldstone and got back a CD that he gave to his sister, who is battling breast cancer.

"It's been a huge home run. We've been sending pictures to friends and family we haven't seen in a long time," he said.

[source: Rochester Democrat & Chronicle]

Thursday, May 04, 2006

Banks Set to Bolt From MasterCard Inc.® on May 22 (

Bloomberg reported on May 4th that "proceeds from the [MasterCard International Inc.] transaction will be used to buy out 1,400 financial institutions that own the company and use its network to process customers' purchases. The IPO is scheduled for the week of May 22."

One thing easy about this planned IPO is how to remember the listing of the company's stock symbol "MA." Just think of "MA" as Merchant Antitrust.

The planned IPO enables the 1,400 banks who currently own MasterCard Inc.® to attempt a shifty hedge by vaulting away from tens-of-billions of dollars in potential legal liabilities. But, what about the list of risk factors, including this quote from MasterCard Inc's. Amended S-1 Registration Statement?: "If we are ultimately unsuccessful in our defense of interchange fees, such regulation may have a material adverse impact on our revenue, our prospects for future growth, and our overall business."

While MasterCard Inc's® investor roadshows will serve up gourmet fare and be hosted at world-class swank venues, lots of alcohol will be needed to sooth and distract potential investors from noticing the IPO risk factors. As this scheme to distance itself from the antitrust litigation now appears to be moving forward, the company remains anchored in litigation and a class-action suit pitting most of their merchant customers against the credit card company.

Even as an independent company, MasterCard Inc®. retains its prior liabilities.

In MasterCard Inc.'s® own words: "If we are found liable ... [loosing the litigation may] cause us to become insolvent, and result in a significant reduction in the value, or the complete loss, of your investment...."

As longtime business leaders, our familiarity with how public relations and advocacy firms serve multi-national giants, sparked our interest as spectators. Separate from our role as lead plaintiffs in the merchant interchange litigation, as co-editors of - The Credit Card Interchange Report, we are prepared to witness some extraordinary theatrics to soften and water down the risk factors. How do you water down cautions like "complete loss?"

Even participants on the hit television show "Fear Factor" would be challenged to solve these risk factors. How will the IPO roadshow, which the Wall Street Journal reports might began as early as next week excite investor interest? This entire business model faces tens-of-billions of dollars in alleged antitrust price-fixing violations

From the regular daily visits to this site from public relations and other advocacy firms, we expect a battle of words is poised to be engaged. Plus, many full-page advertisements in the financial papers to promote this offering. But, thanks to the Internet, with the push of a single button, this message along with many other balanced points of view are immediately disseminated and read across the globe.


Wednesday, May 03, 2006

Credit Card Companies Fear "Perfect Storm" (

By Martin H. Bosworth, ConsumerAffairs.Com, May 3, 2006

If you're an executive at Visa or MasterCard, times would seem to be great. You're making big bucks out of a seemingly endless hunger for purchases made with plastic, and the $800 billion in credit card debt Americans owe ensures a steady flow of revenue.

In the case of MasterCard, your company is ready to go public with an initial offering of $43 per share, after reporting first quarter 2006 earnings of $127 million.

So what's got card issuers and their partner banks so nervous?

After years of unchallenged industry dominance that enabled the two biggest players in the market to set prices and make deals with impunity, Visa and MasterCard are facing obstacles from all fronts, ranging from the ongoing merchant lawsuit against hidden "interchange fees," to competition from new card issuers, to consumers getting rid of their cards in ever-larger numbers.
Not only that, but increasing interest rates and the simple lack of new customers is leaving many in the credit card industry wondering if the financial equivalent of "the perfect storm" is on the horizon.

Interchange Lawsuit

The lawsuit filed by retailers and merchants against Visa and MasterCard over "interchange" fees was recently amended to include debit cards as well as credit cards. The lawsuit deals with the processing fees merchants have to pay to card companies and issuing banks when customers buy goods using plastic.

The plaintiffs allege that Visa, MasterCard and the issuing banks have so much power over interchange fees that they can set rates as high as they wish, causing merchants to lose profits from sales in order to process card transactions.

Henry Armour, chairman of the National Association of Chain Stores (NACS), said in a press statement that "price fixing of interchange is equally as problematic in debit cards as it is in credit cards… Because debit cards are commonly used at convenience stores, especially at the gas pump, this is a significant amendment to the complaint."

Merchants and retailers are concerned that the growing trend towards using plastic for small purchases, or "micropayments," will erode their profits even further.

When a coffee shop customer buys a latte with plastic, the money the retailer makes is almost entirely negated by the cost of processing the transaction, merchants complain.
Banks and lenders have claimed that if the merchants score a victory in the interchange fee lawsuit, it could cost the credit card industry $100 billion to reduce or remove the fees from transactions.

More Players, Fewer Payers

In an effort to demonstrate "good governance," Visa recently agreed to elect new independent members to its board of directors.

This was the first instance of the San Francisco-based credit card issuer opening its board to independent officers, a process begun late in 2005 and not scheduled to be completed until 2007.
Observers such as photo store owner Mitch Goldstone, a lead plaintiff in the merchant lawsuit, speculated last year that the move might be in response to increasing pressure to deal with interchange fees.

"Rearranging board seats a year from now is a good first step," he said on his blog, "It also furthers the argument that Visa's CEO is listening and slowly maneuvering the top over the cookie jar."

Some also speculate that Visa's move is designed to comply with New York Stock Exchange and Nasdaq rules regarding the composition of companies' boards of directors for public trading. Visa may be considering its own public offering to match MasterCard's.

Intensifying Competition

Competition in the credit card lending market is increasingly fierce.

As the average American carries four credit cards with balances of $9,000-$13,000, lenders are having a tough time gaining new customers, and so are resorting to luring existing cardholders with offers of low balance transfers, cash rebates, and so on.

Discover Financial recently announced its plans to offer its own debit card and processing system, and won praise from merchants for dropping the "
No Surcharge" rule from its transactions. The rule prevented merchants from passing the costs of credit card processing on to their customers.
The financial industry was abuzz with rumors that Bank of America (BOA) may
pull away from Visa and MasterCard, and offer its own credit and debit cards, as well as a separate payment processing system.

BOA's purchase of MBNA and its many card offerings gave the Charlotte, NC-based financial behemoth leverage to consider the move, in order stop paying Visa and MasterCard to process charges with its cards.

MSN Money columnist Liz Pulliam-Weston pointed out that as lending interest rates continue to rise, most card issuers are switching their offers from fixed rates to variable rates, which may entice more cardholders to pay their balances off faster or risk defaulting on the loans.

Some lenders are already feeling the pinch. Both J.P. Morgan Chase and Citigroup reported lower first-quarter earnings for 2006 due to increased numbers of American cardholders paying off their balances and closing their cards.


MasterCard: IPO to be priced at $40 to $43 (AP)

Tuesday, May 02, 2006