Friday, December 22, 2006

"Market Structure and Credit Card Pricing: What Drives the Interchange?" (Federal Reserve Bank of Kansas City)

Abstract (50 page report): "This paper presents a model for the credit card industry, where oligopolistic card networks price their products in a complex marketplace with competing payment instruments, rational consumers/merchants, and competitive card issuers/acquirers. The analysis suggests that card networks demand higher interchange fees to maximize card issuers' profits as card payments become more efficient. At equilibrium, consumer rewards and card transaction volume also increase, while consumer surplus and merchant profits may not. The model provides a unified framework to evaluate credit card industry performance and government interventions."

[Source: Via Federal Reserve Bank of Kansas City]

Tuesday, December 19, 2006

"Morgan Stanley to Spin Off Discover" (via AP)

Saturday, December 16, 2006


Mitch Goldstone, President of 30 Minute Photos Etc. is scheduled to address the International Consumer Electronics Show in Las Vegas on January 9, 2007.

Click here for session details.

MasterCard's® Planned Interchange Fee Cap For Gas Retailers (

The news last September seemed monumental, but what happened since the press release?

Whatever happened to the heralded announcement by MasterCard Worldwide® of their response to growing scrutiny of windfall profiteering at the gas pumps? Did Visa® ever follow along too?

From news reports, the second largest card association was planning to limit interchange fees for U.S. gas purchases. Overseas, we see that the company is also planning to lower rates by 60% for debit card transactions, and in the States, sort of lower rates at the pumps too. All this helps demonstrate that interchange fees are way too high.

According to Digital Transactions (Sept 5, 2006) "while the announcement gives no specific effective date for the cap on gasoline interchange, a MasterCard spokesman says the drop-dead date is April 1, 2007."

We wonder what might occur should there be another energy pricing crisis in the States and should gas prices rise again, how will MasterCard respond? Will they hold the cap at $50? Either way, the gimmick is still irrelevant and disconnected from the reality that most motorists' gas tanks cannot hold more than $50 anyway.

Out of Touch (

"MasterCard Initiative: Priceless?" (Convenience Store News)

"MasterCard Offers Concessions In Interchange Fee Battle" (

"MasterCard Says to Disclose More Merchant Fees" (via Reuters)


Thursday, December 14, 2006

"Reserve Bank of Australia to Review Card Payment Systems (Banking Business Review)

Why Credit Card's Can Be Scrooges During The Holidays (commentary:

Actually, the charge card associations and their member banks can be scrooges year-round, according how we interpret "The 12 Ways of Giving" Motley Fool profile today.

As Dan Caplinger for TMF (Dec 14) reported, during the holiday season it can be particular oppressive to non-profit charitable organizations which accept electronic payment donations. They can pay upwards of 5% in interchange fees when benevolent donors present their cards.

TMF Abstract: "...Keep your credit card in your wallet. Many charities accept donations by credit card in order to facilitate giving by donors. However, keep in mind that charities usually have to pay the resulting merchant interchange fees, which can be as high as 5%. Of course, using a credit card to give is better than not giving at all, but better still is a gift by cash or check."

Click here for a recent WTH commentary on how the banks can charge non-profits upwards of 5% to process electronic payments.

[Source: Commentary,, via The Motley Fool]

"Credit Card Firms Slam [AUS] Reserve Bank Over Planned Payments Review" ('The West Australian)

Wednesday, December 13, 2006

"MasterCard's Fee Cut Under EU Anti-trust Scrutiny" (

Anatomy of How Technology Should Reduce Costs (commentary:

With the holiday retail season upon us, millions of retailers are experiencing a similar scenario. Technology has created new opportunities to enhance service, speed and product offerings while significantly lowering prices. While lowering our prices, we pay more in interchange fees, which translates into a $30 billion annual hidden tax on retailers and consumers.

The below two examples can parallel similar experiences from other retailers in many other industries too. Next month, we will be addessing technology issues at the International Consumer Electronics Show in Las Vegas.


At 30 Minute Photos Etc., we charged $5.00 to scan a picture; today it is as low as 5-cents - pay just $49.95 to scan a shoe box of photos (up to 1,000 snapshots) and the orders are completed in minutes. After a Popular Photography article on our business (July, 2006, "Scanning made cheap and easy - Got Prints?")
, orders are now mailed from across the country or literally wheeled into our retail store in Orange County, Calif. One customer brought in 19,000 pictures on a Saturday and picked it up Monday morning. That is technology and efficiency for you!


Another example of how technology has created new opportunities for retailers and saved money and hassles for consumers are holiday photo greeting cards. In 1990, when we founded the company, we had nearly a 50% waste ratio to design and prepare a photo greeting card. Orders were ready a few days later and the cost was about 5 times today's rate. Today, with orders coming in from across the country and at retail on our photo kiosks, the wait time is minutes. The waste factor is zero - unless someone misspells a name on the card. The quality from 16-years ago to today is embarrassing; back then, there was a huge error rate - today, every order is extraordinary.

With completed orders being mailed back nationwide within minutes, the price is also something to note. Today the photo greeting cards are as low as 38-cents.

Partly because we provide special services to military families, this is among our customers' most popular photo greeting card designs this year.

[Holiday Photo Greeting Card Sample from 30 Minute Photos Etc.]

This posting is not designed to be commercial, but informative and explain how technology is speeding up everything and lowering the costs .... except seemingly for merchant interchange rates. Keep in mind, our business is not part of a giant cartel with 80% market power and unbridled control. We have lots of competition, and while we use technology to create new efficiencies, products and lower prices, the credit card associations are continuing to raise rates. While they just announced a planned 60% reduction for debit card use in 2008 overseas, our rates regularly climb.

If technology is helping to lower the costs of business, why are the card associations continuing to raise their rates while also adding new schemes to force merchants to pay more.


Tuesday, December 12, 2006

Seven Dollars vs. 55-cents (

This afternoon, a customer's order at our Orange County, Calif retail photo center totaled $398.19 and they presented their Visa® debit card. Twice it was not accepted. The transaction failed.


We understand that many ATM cards have a daily usage limit of $300. So, rather than creating a hassle, we immediately reswiped the card as a signature credit card. However, the customer was concerned - they knew there were adequate funds available and it was an embarrassing and uncomfortable situation. She even mentioned that retailers pay a higher fee for credit cards even though funds are immediately withdrawn from the cardholders bank account. [Little did she know we are the lead plaintiff in the merchant interchange antitrust litigation and co-edit - The Credit Card Interchange Report].

Doing a little math proved her right. Rather than costing
30 Minute Photos Etc. a flat fee of 55-cents to process the PIN-based ATM card transaction as a debit card, our actual interchange payment cost was closer to $7.00.

Even if a customer has thousands of dollars in the bank, retailers are forced to pay higher signature-based interchange fees.


"Santa’s Not the Only Surprise This Season" (NACS)

ALEXANDRIA, VA – With all the hidden credit card fees that must be paid, a modern version of the popular Christmas tune the “The Twelve Days of Christmas” should be renamed the 12 “daze” of Christmas.

For instance, PNC Financial Services Group’s annual Christmas Price Index that calculates giving true loves every item in the cherished “Twelve Days of Christmas” – from 12 drummers drumming to a partridge in a pear tree – would cost more than $75,000 in 2006. However, the bank conveniently leaves out the hidden cost of credit card interchange fee that consumers pay, which adds upwards of $1,500 to this fabled purchase.

Interchange is a percentage of each transaction that Visa and MasterCard banks collect from merchants every time their credit or debit cards are used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to 2 percent for most credit card transactions.

In 2005, U.S. consumers paid more than $30 billion in interchange fees when using MasterCard or Visa cards, double the amount they paid in ATM and late fees combined.

Shockingly, interchange rates vary significantly by country, and U.S. rates are among the highest in the world, despite having the most-advanced technology infrastructure to process transactions. For instance, in the United Kingdom, consumers hoping to play “Father Christmas” pay interchange rates roughly half of those in the United States.

“The Grinch can’t hold a candle to the credit card companies,” said NACS Vice President of Government Relations Lyle Beckwith. NACS is a founding member of the Merchants Payments Coalition (MPC), a group of about 20 trade associations representing the retail community that is fighting for a more competitive and transparent card system that works better for consumers and merchants alike.

The cost of items referenced in “The Twelve Days of Christmas” increased about 3 percent over the past year, according to the PNC survey, while interchange fees increased at a rate nearly six times greater – 17 percent, according to the MPC.

“It is outrageous how much Visa and MasterCard and their member banks are needlessly saddling consumers with these hidden fees that grow every year,” added Beckwith. “Among other things, these fees are fueling the flood of ‘pre-approved’ credit card come-ons stuffing consumers’ mailboxes, and making shredders a popular Christmas gift for consumers concerned about identity theft.”

“Visa and MasterCard rules effectively require that interchange be built into prices and make cash discounts all but impossible, so these fees take money out of consumers’ pockets regardless of how they pay,” Beckwith added.

Given Visa and MasterCard’s refusal to fully disclose operating rules that govern interchange, Beckwith added one hope: “Perhaps these credit card companies’ resolution for 2007 should be that they provide greater transparency as to why U.S. consumers pay more than $30 billion a year in interchange fees, lining the companies’ pockets and funding everything from junk mail to marketing gimmicks that benefit neither consumers nor retailers.”

NACS, the association for convenience and petroleum retailing, is an international trade association representing more than 2,200 retail and 1,800 supplier member companies. The U.S. convenience store industry, with over 140,600 stores across the country, posted $495.3 billion in total sales in 2005, with $344.2 billion in motor fuels sales.

[Source: National Association of Convenience Stores]
The National Restaurant Association will release its 2007 Restaurant Industry Forecast today at the National Press Club in Washington, D.C. The association will outline policy issues such as credit card interchange fees.

Watch the Webcast live! on 12/12/06 at 10 AM EST.

{Source: via National Restaurant Association, U.S. Newswire release]

Monday, December 11, 2006

More U.S. Cities in Interchangeable Parking Jam (

While New Hampshire and Massachusetts are facing parking meter quagmires, California has credit card accepting meters already in place.

Last weekend, while on the Sunset Strip in West Hollywood, we noticed that the famed landmark street was shadowed by Visa® and MasterCard® accepting parking meters. For as little as 25-cents you can rent a space for 15 minutes on The Strip. We wonder whether West Hollywood knows what Boston and Manchester N.H. understand about how interchange fees eat into their revenues?

[photo caption: Charge card accepting parking meter on the Sunset Strip, Saturday, Dec 9, -]

For typical merchants, the minimum charge / debit card fee on a 25-cent transaction could be nearly the entire amount and in other cases much, much higher. Did the 15-minutes of fame our car experienced on the Sunset Strip end up costing the municipality while helping to enrich the banks and card associations?

The Canadian-based company name imprinted on the back of the receipt (left) is Digital Payment Technologies. We visited their website but could not find any information on how municipalities are handling the interchange fees or what those fees are expected to be for micro-transactions.

New Hampshire Parking Meters Accept Plastic (via Union Leader)

"[Boston] Halts Use of Credit Cards at New Meters" (via The Boston Globe)

Boston Strangled by Interchange Rules (


Global Interchange Fee Perceptions (

The Sydney Morning Herald's headline (Dec 11) "Credit card firms slam RBA review" suggests that the Reserve Bank of Australia's decision to review interchange fees is "unbalanced." Right they are. If one on hand, MasterCard Europe® can announce plans to lower rates on debit cards by 60%, why then is the giant card association fighting another nation's eagerness to have equal balance and demand these fees be cost-based?


  1. Sixty-percent Rate Cut in 2008 by MasterCard Europe (Commentary,, via WSJ)
  2. "MasterCard Europe reportedly said that it would lower debit card transaction fees by 60 percent in 2008, as the Single Europe Payments Area regulations kick in. European regulators are still investigating if the payments company had violated antitrust laws by setting interchange fees for cross border debit card transactions." [The Asian Banker]

[Source: via Sydney Morning Herald]

Sunday, December 10, 2006

"RBA to Review Credit, Debit Card System" (The Age)

Retailers Taken on Frequent Flyer Ride (*

Recent merchant interchange fee increases were linked to frequent flyer reward card programs. The rates were increased when cardholders used their affinity frequent flyer-linked cards.

However, if you are late paying a single monthly credit card bill, the card company can confiscate all your accumulated frequent flyer mileage accrued on your account

The question?

Even though merchants are paying more when honoring affinity reward cards, if the cardholder is forced to return all the mileage, does this mean that the business gets a refund too? Alter all, we paid a premium and if the cardholder is precluded from using those miles, shouldn't the retailers get a refund?

The inequity does not end with affinity cards. Just this past weekend, during a hotel visit, a credit was issued to our account for certain charges. a refund for the taxes were applied, but when merchants issue credits on a charge card, their are no interchange fee refunds.

Example: If a furniture store sells a $10,000 living room set and the customer returns it, the retailer is forced to still pay the interchange fee even though the items were returned. Forget "restocking" costs, how about interchange fee costs on returns, especially during the holiday season.


Wednesday, December 06, 2006

"Dreamgirls" Dream-on (

Not sure if our international readers will understand this, but, in the States, the biggest theatrical release this holiday season will be Dreamgirls. Within the next few weeks all the buzz will be swarming around this film. The story is about the price people pay for fame. We only hope they are not charging it to reach their glory because the dream can become a nightmare.

Earlier today we read a commentary [
Albany Times Union] about how "interchange fees are transparent to merchants." Just the headline seemed to be wishful thinking.


Merchants and cardholders have little or no idea that this is a $30 billion dollar windfall that the banks and the two leading card associations have been controlling for decades. If they want "transparency"
post the exact charge on every cardholders receipt.

The head of this one-year old advocacy group [supported by the banks, payment card networks - (i.e. Visa & MastercCard?) and their trade associations]
explained that "merchants receive extraordinary benefits from accepting electronic payments." This might have been news if the commentary was authored by a retailer, but, by their Washington, D.C. policy and advocacy tool. And for all that money, we would have thought Mr. Madigan could have garnered greater pickup for his "commentary" than having it appear in an Albany, NY paper.

We wonder whether a similar editorial was published in the late 1800's when the railroad cartel forced farmers to pay whatever rates they imposed for the benefits derived from transporting their goods to market. Without the railroads carrying their goods to market they would have been out of business - the produce would have rotted.

Today, Visa® and MasterCard® control a staggering 80% monopolistic share of the electronic payment market. Their market power parallels the characteristics of the railroads which also stood accused of forcing secret price agreements to control their market.

Fast forward to today: because we have been invited to address the
International Consumer Electronics Show next month in Las Vegas, we think this forum [the largest trade show in the U.S.] will be an ideal venue to learn just how transparent interchange fees are. January 9th and our panel discussion boasts an ideal opportunity to spotlight why retailers and consumers are battling Visa and MasterCard.


Tuesday, December 05, 2006

Credit Card Branding Confusion (

With the holiday retail season in full swing, some newly co-branded Visa® and MasterCard's® are a giant headache for retailers. Just today, one of our retail photo customers presented us with her credit card. It was a store card from Gap Inc. and the electronic processing terminal declined the transaction. The customer then presented us with her Nordstrom's card, which did have a Visa imprint on the front. Without close inspection, it was challenging to differenciate the two.

Why is this important?

While the Gap card was without interchange charges, the Nordstrom's Visa co-branded card cost us the signature interchange rate.

Even Cardholders are Perplexed by Debit vs. Credit Cards (


Sixty-percent Rate Cut in 2008 by MasterCard Europe (Commentary,, via WSJ)

Those are some rich margins!

Imagine if you owned a retail shop and announced that you were slashing prices by 60 percent? It would mean one of two things; either your merchandise did not sell during the holiday season, or you are preparing to close shop. In the case of MasterCard Europe®, their announced 60% interchange fee reduction on Maestro® debit card payments made in the euro zone certainly does not suggest a weakened company. Instead, it enhances the argument that interchange fees currently are way too high. They are way too high in Europe, they are way to high in Asia, they are way too high in Australia. They are way too high across the globe, especially in the U.S., which faces among the steepest interchange fees for any leading industrialized nation.

However, before consumers and merchants in Europe prepare to celebrate, according to The Wall Street Journal Reporter, Anne Jolis, the lowered bank fees are more than a year away.

How many more billions will be generated until the fee reduction takes hold in January 2008?

Why the delay of a year?

We assume that Visa International's® legal and public relations teams are speedily preparing a similar announcement as both card associations share many of the same member banks.

With no PIN-based debit card interchange fees in Canada, it seems that MasterCard has room for enhancing the rate reduction by another 40 percent.

If the gas companies can lower and raise prices at the pump with the flick of a switch, the banking cartel surely can lower rates now. Why wait until 2008?

Why cut interchange fees by 60% only on debit-cards and not on credit cards? Remember, MasterCard and Visa® encourage cardholders to posses debit cards, but use it at the much higher interchange fee structure that accompanies credit cards in order to validate their sweepstakes and other contest schemes.

Does this mean that MasterCard Europe will spend the next year encouraging those with debit cards to instead use the cards as traditional credit cards and thus bill merchants at the much higher rates?

And, the biggest question: Why only cut debit card fees by 60 percent in Europe?

We sense this appeasing concession by MasterCard Europe is designed to partly placate the expected ruling by the European Commission. While MasterCard Europe's white flag is hoisted in the air, the two leading card associations' alleged price-fixing transgressions have already occurred. Moving forward, this is a nice first step, but their pricing scheme and restraints on competition have a long history of alleged antitrust violations.

As reported in
The Wall Street Journal (Dec 5, Page E2), "The commission says MasterCard Europe and its Maestro debit card account for about 45% of all payment cards issued in Europe. In 2004, a total of 23 billion payments, with a value of €1.35 trillion, were made in the EU with credit and debit cards."

[Commentary:, via WSJ]

Monday, December 04, 2006

"MasterCard Europe Publishes Sepa Interchange Rates" (

"Mastercard Cuts Euro Zone Interchange Fees for Maestro Payments" (AFX News)

New Hampshire Parking Meters Accept Plastic (via Union Leader)

Last month, Boston, now Manchester, NH.

According to the Union Leader, new parking [kiosk] meters in Manchester N.H. are accepting Visa® and MasterCard® electronic payments for as little as a nickel's worth of leased space for your car - six minutes at the meter. From what we gleaned, the city might have wanted to imposed a one-dollar minimum for electronic payments. However, it seems that the recent parking meter fiasco in Boston - where they also abandoned plans for enforcing that minimum charge card limit has now been imposed.

What happens when a motorist enters their Visa card so they can run into the corner shop for just a minute? The Union Leader reported that "[the] transaction processing fees have been reported to be as high as 18 cents on the dollar." How can the city recoup its nearly million-dollar investment after the fees to Visa and MasterCard are paid?

"[Boston] Halts Use of Credit Cards at New Meters" (via The Boston Globe)

Boston Strangled by Interchange Rules (

[Source: via Union Leader, Dec 4]

Saturday, December 02, 2006

Seventy-two pages, five-pages or one line? (

[REPOST, Nov 4, 2006]
Sample Transparent Credit / Debit Card Receipt
To liberally paraphrase Oliver Wendell Holmes Jr. who said, "a page of history is worth a volume of logic," posting the exact merchant interchange fee (sample below) on all charge receipts is worth a volume of confusing fee schedules cloaked within dozens and dozens of website pages.
The two leading card associations now post their fees for review; there are from five to seventy-two respective website pages to identify their rates.
Isn't the below unadulterated sample receipt more guideless and simple to understand?

IRVINE, CA 92606
TERMINAL I.D.:................... 000000000
MERCHANT #:............. 00000000000000
SALE EXP:................................... 08/09
BATCH: 0043523....INVOICE: 22545612
DATE: NOV 2, 06.............. TIME: 11:42
RRN: 00000000........AUTH NO: 0211190

Interchange Fee:.... $8.26



30 Minute Photos Etc.


Growing List of Reasons to Lower and End Interchange Fees (

[REPOST from Oct 9, 2006]

Seemingly, the banks’ formula is to create an ocean of control. One retailer quipped that Visa® and MasterCard’s® motto should be: there are three certainties: death, taxes and rising interchange fees.

Even so, technology today speeds up everything including lines at airports. New advanced technology programs geared towards frequent flyers even help limit security check-point inconveniences.

At home, technology is speeding up our lives too. Those one-hour television series are now just over 30-minutes with TiVo. I tune into a program half way through, start the TiVo playback and speed through the show, allotting more time to edit

These efficiencies are everywhere except when it comes to merchant interchange fees.

A recent Forbes Magazine (Oct. 16, p 18) study of Silicon Valley identified that in just 50-years the storage capacity on a computer’s hard drive went from 2,000 bits to 421 billion bits on a square inch. As speed went up, prices went down, but not apparently when it comes to electronic payment transactions.

Another example of efficiency: Apple is introducing a new consumer service for downloading digital movies in minutes for a few dollars - then again, that is prior to adding Visa® and MasterCard’s® take for online ordering.

Has anyone heard Starbucks blame fraud as a justifiable reason to increase the fees on their highly accepted gift cards? They even linked up with CoinStar and technology to easily transfer consumers' change into plastic Starbucks gift cards in seconds and with no added charges or "convenience fees," - as you would expect from TicketMaster. Like all gift cards, at Starbucks, there are no added payment charges and certainly no interchange fees, even though there are technology costs associated with this program. And, the last thing anyone expects to hear is that Starbucks is facing financial woes due to the electronic transaction costs from its gift cards; rather it has been a rich financial boon to the company.

Albert Einstein's quote: "The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing," is a wake up call beyond geo-political issues, but for all activists. The passion to stand up for justice reaches all areas.

For retailers and consumers, there are those who just accept a $30 billion dollar annual bank payday at our expense, and then there are those doing something about it. As lead plaintiff in the merchant interchange litigation, we are striving to be among those who do not just look on, but act to remedy a massive injustice.

Unceasing and interchangeable excuses provide fodder for more fee increases by the banks; they are now planning for MasterCard's® rate increases next week.

Rhetorically, we wonder why even gas prices are coming down, yet interchange fees are rising? Is it that the banks’ cartel is even more powerful than OPEC’s?

The fuel price increases from months ago were attributed to many causes; at one point it was China and their mountainous consumer spending. That was the reason provided for pressure on many commodities, from fuel, gold and copper. I wonder why the banks did not also attribute their rate increases that will arrive next week on China too, or did they?

In our photo business, technology has changed our entire industry during the transition from photographic film to digital imaging. Our high-speed Kodak photo scanning brought down our price from $5.00 per picture scan to as low as 5-cents in just a few months. Technology and the use of new products like the Toyota Prius are helping to soften gas prices even more. We guess lower gas prices had more to do with the Prius than the credit card associations’ price at the pump cap gimmick.

Last weekend, during another photo conference which I addressed in Minneapolis, retailers were steaming mad at the latest round of merchant fee increases. Business owners wanted to know why there were new fee increases and what they could do to interrupt this immeasurable orgy of rate increase madness.

Entrepreneurs and all-sized businesses want to own and control their companies. But, with unremitting interchange fee increases that are forced upon us without negotiating, we are working for the banks. When other supplier’s raise their rates we can call to level concern and even arrange to go elsewhere. However, with MasterCard® and Visa®, its other partner which is also owned by many of the same banks, they dominate with a planetary-sized 80% share of the market.

Beyond technology, a study of other nations' electronic payment fees helps empower the argument for lower or even no fees.

Write a check and the interchange fee is zero.
Use a PIN-based debit card in Canada and the interchange fee is zero.

More background, click here