Monday, July 17, 2006

"Credit Card Firms Hit Back at EU's Attack on fees" (Reuters)

In an article published today by Reuters, MasterCard's® European president countered charges by explaining that the second largest credit card association doesn't make a penny from interchange fees.

Technically, that might be an accurate statement, but someone is reaping nearly $30 billion in fees. If not MasterCard®, then who?

The member banks, which until recently owned both Visa® and MasterCard® allegedly collectively fix interchange fees by agreement. They get the fees.

An easy way to explain this is from a recent comment shared by a friend after the Yankees lost a game by a wide margin. With this logic, it was explained that when the card associations explain they don't make a penny from interchange fee, it is like saying the Yankees didn't recently give up 19 runs - their pitchers did.

As the card associations explain that these fees are designed to balance the cost of transactions between banks, in reality it is being used to subsidize their frequentt flyer award programs and a host of other marketing and related expenses.

Indeed this is a hidden tax on merchants and consumers. Imagine if the Federal Reserve charged an interchange fee to clear the billions of checks it processes. Imagine if in Canada, there was an interchange fee on PIN debit card transactions.

Click here to view the The European Commission Report