Monday, March 05, 2007

Interchange Fee Justification (

Years ago, when merchant interchange fees were purely cost-based, there was a level of understanding about the costs associated with the charges. However, we keep noticing new adventures in unwarranted fee increases; most recently MasterCard Worldwide's® planned fee increases.

Do you remember when you were first issued a credit card? Seemingly, the expiration date was within 12-months, or within a very brief period. The banks which controlled the card association's would be forced to regularly reissue the cards. There were all types of fulfillment and processing fees associated with the card renewals. However, at technology advanced, the banks were able to cut costs by issuing cards with expiration dates lasting longer than many relationships. Years ago, retailers were provided with thick books listing each unauthorized card. Imagine having to manually pause to track whether a card was not to be processed. Today it is instant and all electronic, yet the fees continue to increase. Didn't it cost a great deal of money to publish and mail out those weekly unacceptable card reports?

Our retail and ecommerce business regularly receives cards that actually expire in 2011 - four years from today. Think of the implied cost savings that should bring down the merchant interchange fees, as fewer costs are incurred by issuing cards with such distant expiration dates.

Justifying interchange fees and its associated increases are becoming more magical and creative with each passing day.