Sunday, September 23, 2007

"Dot-Com" Bust, Sub-Prime Mortgage Collapse, Is Interchange Scheme Next? (

Is another multi-billion dollar bubble about to collapse?

Hundreds of years ago, during Holland's speculative tulip bulb craze that gripped the nation, the laws of economics prevailed and the market for flowers collapsed. During the closing days of the last decade, we again witnessed a market failure from the Internet "" fiasco. This summer, it was the unchecked financial policies that led to our nation's housing predicament.

Where were the regulators when U.S. President Bush was encourage home ownership? Now, we are saddled with billions of dollars in losses because greed by the financial institutions was elevated above smart planning.

The same thing is again happening with merchant interchange fees.

Due to the banks' unbridled pricing controls over merchant interchange fees, what use to be cost-based is today a fiefdom for non-stop rate increases that retailers and consumers are unable to control. There are no checks to this madness; Visa®, MasterCard® and its thousands of member banks are today's new enemies battling its two core customers - retailers and cardholders. At least with the tulip craze in the early 1700s, there was a fragrant aroma, while today's threatening interchange fees and its electronic payment network is nothing more than a rotten, unfair conspiracy to unlawfully fix prices.

Studying MasterCard and now Visa's IPO "Risk Factors" says it all and flashes the most serious of warnings as they foreshadow what might just happen: the two leading credit card associations could become "insolvent" ["Interchange fees are often the largest component of the costs that acquirers charge merchants in connection with the acceptance of payment cards," according to Visa's SEC filing]

If our class action prevails in this antitrust litigation, the same outcome as with tulip bulbs in Holland, Internet stocks on Wall Street and the housing prices in southern California and other speculative markets might just be a giant foreshadowing of what could happen to this interchange fee debacle.

Today, there is little justification for any interchange fee, let alone upwards of $40 billion dollars each year.

Today's market power of the general purpose card network is without justification. Just look at other nations, even those less industrialized ones and ask why their interchange fees are so much lower than the 1.7% in the U.S.

And, why again are interchange fees for the very costly check writing and clearing process also zero in the U.S.?