Monday, July 17, 2006

MasterCard Worldwide® Sweepstakes Scheme Impacts Merchants (

Log onto® today and the first item you view is a banner advertisement linking you to MasterCard Worldwide's® new "Win 500 Flights" Sweepstakes.

Every time you use your card through August 31, you automatically enter a chance to win 500 round-trip airline tickets. Even the press release announcing this new promotion explained that "each time MasterCard® cardholders use their MasterCard® cards ... in the U.S., they are automatically entered for a chance to win the grand prize." But, it was not until the fine-print of the contest rules where we learned this scheme comes with a hidden cost that hits retailers hard.


From the fine-print rules: "PIN-Based & International Transactions Not Eligible For Automatic Entry." More to the point, the MasterCard® press release goes further than explaining that the debit cards are not valid towards automatic entry. We also guess that 99.9% of all submissions will be automatic transmission-based. The card association actually advised and got to the point in a more direct fashion: " PIN-based/international transactions [are] ineligible."

Why is this important?

As the banks promote the efficiencies of using debit PIN cards, consumers often are enticed to request that merchants enter their purchase not at the low fixed rate interchange charge, but rather at the much more costly percent-of-sale charge. A $100 electronic payment PIN-based transaction might cost the retailer about 50-cents, vs. $2.50 from a credit card charge. 1We all know what the chances of winning such sweepstakes are, but when cardholders demand that retailers accept the card at the much higher non-PIN rates, businesses are the automatic loser of the scheme.

Back to travel. More than a year ago, we originally got involved in this interchange battle because the credit card associations raised rates for affinity, frequent flyer cards. As consumer advocates, we did not think it was right that merchants were also being taken on a ride. Today, this new sweepstakes is just as cunning. It forces businesses to again be taking on the same ride; this time just one person out of billions of transactions will win.

Prior press releases from a group which "enjoys the financial support of Visa U.S.A.®" advocated using debit cards.

As background, nearly every day customers at our retail photo center demand their transactions be processed as a credit card rather than at the much lower debit card rate.

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