Saturday, January 27, 2007

Citibank® Debit MasterCard's® Unfriendly "Journey." (

Although Citibank® is not the only financial institution offering creative gimmicks to incentivise cardholders to use their debit cards at the much higher credit card interchange rates, their program is a portrait of how their cartel is reaping billions of dollars at the expense of merchants and consumers who pay supra-competitively priced interchange fees.

We just heard of a new Citibank Debit MasterCard® program called: "Life is a journey. Bring your companion." How it works: Make three purchases for more than $30 each during February and you can receive a complimentary companion airline ticket. Great deal - $90 in purchases and a free airline ticket?

Here is the catch, according to the mailed solicitation: "when you make a purchase press 'credit' and sign. That's all there is to it."

What is not mentioned is that even though cardholders choose to complete the transaction at a typically much higher signature card interchange rate, the funds are still instantly vacuumed from their bank account. The banks get the cash instantly and the merchants are also taken on a ride - they are forced to pay much higher percent-of-sale interchange rates. Programs like this may be what Senator Christopher Dodd (D- CT) had in mind when last week he addressed interchange issues during a Washington hearing.

The Citibank N.A. offer makes this program appear so simple, use your debit card as a credit card, charge more than $30 for three separate purchases and you receive a complimentary companion ticket. It is no wonder the credit card association's and their member banks are bilking retailers so much, the fees paid to reward programs is big business.

According to an article in Digital Transactions, a report by Diamond Management & Technology Consultants identified that rewards account for 44% of total interchange costs.

Even with this travel program, don't pack your bags so quickly. In tiny magnifying glass-sized print, cardholders are advised that "you will receive a registration package for a companion ticket within 150 days of the end of the promotion" [5 months afterwards].

The solicitation explain that you "debit card means no interest. Although your debit card looks like a credit card, it acts entirely differently. Purchases are taken directly out of your checking account so there's no interest to pay, ever." What is missing is that when you comply with the bank's requirement that you force the merchant to accept your card at the much higher signature card rate, you too are faced with paying an additional hidden tax. If the banks believed in full transparency, they would explain that retailers are forced to pay higher fees.

How can they get away with such unbridled greed?

When you operate a cartel that controls 80% of the market and you set fees by agreement, you can do exactly that.

[Editors note: MasterCard and Citibank N.A. are among the named defendants in the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation in which 30 Minute
Photos Etc. is the lead plaintiff].