[The Wall Street Journal, July 12, Subscription Required]
The Wall Street Journal's Worth Civils explained that "MasterCard lost all appeals," in recent antitrust litigation.
J.P. Morgan's Chris Brendler thinks MasterCard has "an uphill battle given its lack of success to-date at both the trial and appellate court levels." According to the WSJ, Mr. Brendler "expects MasterCard to settle rather than face 'potentially devastating damages should the company lose in court.' He estimated a court loss could lead to damages exceeding $30 billion, or $144 a share."
Credit Suisse' Moshe Orenbuch described interchange as "largest single risk to MasterCard's valuation."
[Source: WSJ]
Wednesday, July 12, 2006
Tuesday, July 11, 2006
Monday, July 10, 2006
What's Wrong With Merchant Interchange Fees (WayTooHigh.com)
The Merchants Payments Coalition (MPC), representing the nation’s retailers, department stores, supermarkets, drug stores, convenience stores, gas stations, and on-line merchants has posted several key issues regarding interchange fees on its website. MPC represents more than 2.7 million locations and approximately 50 million employees.
- Very few Americans know that they pay a hidden fee on virtually every transaction they make, whether they use a credit card or not.
- This fee, called interchange, is a percentage of each transaction that Visa and MasterCard collect from merchants every time credit or debit cards are used to pay for a purchase.
- Interchange fees average close to 2% on each card transaction and last year this fee cost consumers more than $26 billion.
- This interchange fee system is tremendously unfair because ultimately all consumers pay for this hidden fee.
- The average American family pays hundreds of dollars in interchange every year.
- And that is true whether or not that family uses a single credit or debit card.
- Because these fees are hidden in the cost of virtually everything we buy, even cash-paying consumers ultimately pay for them.
- Even worse, unlike other credit card fees that show up on a monthly statement, the interchange fees paid by consumers are not disclosed to cardholders because Visa and MasterCard wrote the rules that make it virtually impossible to tell consumers how much interchange fees cost them.
- Visa and MasterCard control a system that is fundamentally anti-competitive.
- Visa member banks collectively agree to charge the same interchange rates.
- MasterCard member banks do, too.
- This price-fixing hurts consumers.
- It’s time to force credit card companies to explain their fees, practices and policies in public.
{source: Extracted from the MPC website, UnfairCreditCardFees.com]
Sunday, July 09, 2006
Shouldn't Smart Cards Remedy Soaring Interchange Fees? (WayTooHigh.com)
Technology should equate to more reliable service and lower costs. Right?
A recent WayTooHigh.com commentary on "Moore's Law" explained how this functions in seemingly all industries but banking. For the two global payment card leaders - which share nearly 85 percent of the market and are partly co-owned by the same banks - Moore's Law appears to falter.
The credit card companies list several factors to establish their default interchange rates. Among them are:
1) "Costs that the issuing banks incur"
2) "[C]redit losses"
3) "[F]aud losses"
4) "[F]raud prevention costs"
5) "[P]rocessing costs"
That said, look at technology and how it is helping to mitigate these factors. According to the Los Angeles Times (July 9), foreign countries have mandated that card issuers adopt "smart cards" which have computer chips and personal identification numbers (PIN) built into the cards, rather than the more antiquated magnetic strips, signiture-based cards.
Cardholders enter the more secure [lower risk, lower cost] PIN number, instead of scribbling their name on a receipt. These new rules were enacted by foreign governments to "curtail fraud."
According to the Los Angeles Times, "the chip and PIN cards have been successful in reducing bogus transactions. The same "Travel Insider" article writen by James Gilden reported that credit card fraud dropped in Britain alone by $117 million last year - even though the smart card technology was not fully introduced.
So, the question is if interchange rates are indeed cost-based, then why are merchants and consumers faced with a reported $30 billion annual hidden tax? While technology clearly is helping to reduce processing costs, if it is not because of collusive price-fixing, then why are rates still rising?
Merchants and trade groups are suing Visa®, MasterCard® and their leading member banks because of alleged antitrust law violations. Yes, there is great value derived from accepting payment cards, but that is not the issue. To distract from the issue, MasterCard®, for instance, attempts to deflect the concerns of millions of retailers by publishing statements on their "Company Info" website page insisting that "these lawsuits are being driven by class action lawyers whose primary motive is to extract enormous fees for themselves."
All they have to do is ask their customers. For instance, earlier today we received the below email from the owner of a restaurant in Jacksonville, Texas. While it was edited for clarity, you can see that this multi-billion dollar issue is not about lawyers, but rather real people with real issues.
This morning, I discovered your blog. What's going on in "middle America?" The fleecing of small merchants by credit card companies and their interchange fees is ghastly. Because we have no way to differenciate between debit and credit cards though our processing terminal, our fees have almost doubled in the past 3 years. Over half of our sales every day are credit card/debit sales. It was killing us. We're in a small market and are fortunate that many of our guests have been very understanding. Your website was a breath of fresh air. I felt pretty much all alone in my disgust of the interchange fees and monopoly of the credit card companies until this morning.
[Source: WayTooHigh.com]
Credit Card Zero Percent Deals (Credit Cards GB)
On July 9, Peter Kenny wrote in England's "Credit Card GB" about the myriad of richly incentivized deals tendered by the credit card companies. While this credit card information guide profiled several marketing promotions that are absent of credit card fees, we wonder why the regular discount incentives are singularly shared with cardholders rather than with merchants?
When was the last time there was a zero percent interchange fee promotion?
[source: WayTooHigh.com with link to Credit Card GB]
When was the last time there was a zero percent interchange fee promotion?
[source: WayTooHigh.com with link to Credit Card GB]
26 Leading Issues: Credit Card Interchange Fees (WayTooHigh.com)
[Repost from Nov 2, 2005]
26 leading issues affecting credit card interchange fees
1) Merchants' interchange fees have risen even though network fees are decreasing.
2) The credit card companies have an unbridled ability to raise fees at will. Member banks of the credit card associations are in our opinion, co-conspirators.
3) Since 1999, the PIN debit fees rose 267 percent.
4) In the early 1990s there were about a dozen separate interchange fees, today there are nearly one hundred. These interchange fees seemingly always increase and have not decreased.
5) Visa and MasterCard fix uniform credit card interchange fees, which are agreed to and used by all Visa and MasterCard banks.
6) This collective horizontal price fixing violates Section 1 of the Sherman Act.
7) Even the cost for paying out reward benefits to affinity card holders has declined and is getting more stingy. Ex: American Airlines now charges a fee of $250 each- way to cash in frequent flyer mileage to upgrade from coach to business-class on international flights. This is an audacious game few understand.
8) The credit card associations are extending loyalty and kick-back programs to consumers which few can actually figure out the value of. If merchants could even figure their actual cost - from nearly one-hundred separate rates - and listed the actual Interchange fee as a separate item on the customers' receipt, people would be less likely to want frequent flyer mileage rewards once they understood how much more they are actually paying for those perks.
9) This is a hidden tax on consumers and merchants.
10) With today's technologies, the interchange structure is now inefficient. In our opinion, consumers don't benefit and merchants don't benefit.
11) Part of this inefficiency relates to credit card companies where only 1 in 2000 of their mail solicitations lead to signing up just one new cardholder. Credit card companies mail out 5.24 billion mail solicitations each year yet only 4-10ths of 1% reply. This means 5 billion pieces of mail are garbage. What other industry has such huge profits that they can afford to throw away 5 billion pieces of junk mail every year?
12) Why does it cost so much to use a credit and debit card, rather than with writing a check? There is a zero interchange fee for checks, the money goes directly from the consumer to the retailer. Example: The checking system works without any of these fees. The difference between credit card and check fees are also a study in competition; banks impose various fees on account holders and on merchants for writing and processing checks, from zero to a variety of rates in order to stay competitive.
13) Today, the card associations have lower costs and even no float expense when debit cards are used. With technology, there is less fraud and no need for paper receipts. Processing and telecommunication fees are lower and now automated. With interest rates so low for so long, even the cost of the the regular float has declined.
14) Merchants shouldn't have to cover the cost for card holder credit risks. Defaults by card holders should not be paid by merchants, but rather, issuers should be more careful who they extend credit to.
15) There is no ability to bypass the credit card network. For instance, 30minphotos.com operates a national online boutique photo service where all online orders require transactions to be completed with credit cards, this parallels the entire online retail segment.
16) Part of the proof that the card association and their interchange fees are a monopoly is that even though rates continue to rise, merchants are forced to use their products.
17) Trickery and confusion. Even though there are lower interchange rates for debit cards, it is increasingly more difficult to distinguish debit cards. It's difficult to see the "debit" or "check card" reference and retail clerks can easily ring up the sale as a charge card, thus paying higher rates.
18) When consumers present merchants with faulty magnetic strips on their cards it cannot be swiped by the card reader. This causes merchants to then manually enter the number, which costs more even though there is an identical risk to the card association. But, the charge for manually entering a card is excessively higher, and even higher if the address and zip code are not entered.
19) In 1994, the Visa and MasterCard interchange fees on a $100 transaction for the largest non-supermarkets was about 1% and 1.33%, today it is 1.53% and 1.58%, respectively. For the smallest non-supermarket merchants, the charge was about 1% and 1.31% in 1994; today it is about 1.61% and 1.72%, respectively.
20) There is no added direct value or benefit to the merchant by accepting an affinity card or any other card, such as the Visa Signature card.
21) Australia, the European Union and the United Kingdom are samples where interchange regulations work. The U.S. is the only market where interchange fees are increasing. Canada, for example, has a zero interchange fee for debit cards and their PIN Network is the most popular way to transaction business. U.S. Interchange fees are 3-times higher than in Australia and two-times higher than in the UK. Australia is a great example - since the nation regulated these rates, merchants paid $500 million less. This translates into lower costs to consumers. The Australian CPI actually declined and there was an increase in card usage.
22) The only leverage merchants have is in choosing their payment processor. Those fees are highly competitive, yet the Interchange fees cannot be negotiated.
23) Because banks are now permitted to issue Amex and Discover cards, MBNA and Citibank plan to issue Amex cards, which means, merchants will be flooded with the higher costing premium cards (this translates into a 50% increase in costs from about 140 bp [basis points] to 210 bp. I anticipate they will then convert their classic cards to higher priced "signature" "affinity" and "business" cards.
24) The argument by Amex was that their card holders spend more money. Perhaps this is based on buying diamonds and luxury items, but when you are at a convenience store, the amount charged from a Visa card is typically the same as for Amex. As MBNA and Citibank switch from Visa to Amex, they are appealing to the same group of cardholders with the same spending patterns.
25) How can groups like "Americans for Consumer Education and Competition" be expected to be objective? [(ACEC is financially supported by VISA USA]. They suggest merchants want to pass along the interchange fees to consumers. The fact is that this litigation has nothing to do with "shifting' costs from merchants to consumers, but rather it is about reforming the system so that competition works and will drive total costs down so that both merchants and cardholders have lower costs.
26) The Bank of America announced acquisition of MBNA will only worsen the competitive problems faced by merchants, and will further reduce competition in the credit card business.
[Source: WayTooHigh.com]
26 leading issues affecting credit card interchange fees
1) Merchants' interchange fees have risen even though network fees are decreasing.
2) The credit card companies have an unbridled ability to raise fees at will. Member banks of the credit card associations are in our opinion, co-conspirators.
3) Since 1999, the PIN debit fees rose 267 percent.
4) In the early 1990s there were about a dozen separate interchange fees, today there are nearly one hundred. These interchange fees seemingly always increase and have not decreased.
5) Visa and MasterCard fix uniform credit card interchange fees, which are agreed to and used by all Visa and MasterCard banks.
6) This collective horizontal price fixing violates Section 1 of the Sherman Act.
7) Even the cost for paying out reward benefits to affinity card holders has declined and is getting more stingy. Ex: American Airlines now charges a fee of $250 each- way to cash in frequent flyer mileage to upgrade from coach to business-class on international flights. This is an audacious game few understand.
8) The credit card associations are extending loyalty and kick-back programs to consumers which few can actually figure out the value of. If merchants could even figure their actual cost - from nearly one-hundred separate rates - and listed the actual Interchange fee as a separate item on the customers' receipt, people would be less likely to want frequent flyer mileage rewards once they understood how much more they are actually paying for those perks.
9) This is a hidden tax on consumers and merchants.
10) With today's technologies, the interchange structure is now inefficient. In our opinion, consumers don't benefit and merchants don't benefit.
11) Part of this inefficiency relates to credit card companies where only 1 in 2000 of their mail solicitations lead to signing up just one new cardholder. Credit card companies mail out 5.24 billion mail solicitations each year yet only 4-10ths of 1% reply. This means 5 billion pieces of mail are garbage. What other industry has such huge profits that they can afford to throw away 5 billion pieces of junk mail every year?
12) Why does it cost so much to use a credit and debit card, rather than with writing a check? There is a zero interchange fee for checks, the money goes directly from the consumer to the retailer. Example: The checking system works without any of these fees. The difference between credit card and check fees are also a study in competition; banks impose various fees on account holders and on merchants for writing and processing checks, from zero to a variety of rates in order to stay competitive.
13) Today, the card associations have lower costs and even no float expense when debit cards are used. With technology, there is less fraud and no need for paper receipts. Processing and telecommunication fees are lower and now automated. With interest rates so low for so long, even the cost of the the regular float has declined.
14) Merchants shouldn't have to cover the cost for card holder credit risks. Defaults by card holders should not be paid by merchants, but rather, issuers should be more careful who they extend credit to.
15) There is no ability to bypass the credit card network. For instance, 30minphotos.com operates a national online boutique photo service where all online orders require transactions to be completed with credit cards, this parallels the entire online retail segment.
16) Part of the proof that the card association and their interchange fees are a monopoly is that even though rates continue to rise, merchants are forced to use their products.
17) Trickery and confusion. Even though there are lower interchange rates for debit cards, it is increasingly more difficult to distinguish debit cards. It's difficult to see the "debit" or "check card" reference and retail clerks can easily ring up the sale as a charge card, thus paying higher rates.
18) When consumers present merchants with faulty magnetic strips on their cards it cannot be swiped by the card reader. This causes merchants to then manually enter the number, which costs more even though there is an identical risk to the card association. But, the charge for manually entering a card is excessively higher, and even higher if the address and zip code are not entered.
19) In 1994, the Visa and MasterCard interchange fees on a $100 transaction for the largest non-supermarkets was about 1% and 1.33%, today it is 1.53% and 1.58%, respectively. For the smallest non-supermarket merchants, the charge was about 1% and 1.31% in 1994; today it is about 1.61% and 1.72%, respectively.
20) There is no added direct value or benefit to the merchant by accepting an affinity card or any other card, such as the Visa Signature card.
21) Australia, the European Union and the United Kingdom are samples where interchange regulations work. The U.S. is the only market where interchange fees are increasing. Canada, for example, has a zero interchange fee for debit cards and their PIN Network is the most popular way to transaction business. U.S. Interchange fees are 3-times higher than in Australia and two-times higher than in the UK. Australia is a great example - since the nation regulated these rates, merchants paid $500 million less. This translates into lower costs to consumers. The Australian CPI actually declined and there was an increase in card usage.
22) The only leverage merchants have is in choosing their payment processor. Those fees are highly competitive, yet the Interchange fees cannot be negotiated.
23) Because banks are now permitted to issue Amex and Discover cards, MBNA and Citibank plan to issue Amex cards, which means, merchants will be flooded with the higher costing premium cards (this translates into a 50% increase in costs from about 140 bp [basis points] to 210 bp. I anticipate they will then convert their classic cards to higher priced "signature" "affinity" and "business" cards.
24) The argument by Amex was that their card holders spend more money. Perhaps this is based on buying diamonds and luxury items, but when you are at a convenience store, the amount charged from a Visa card is typically the same as for Amex. As MBNA and Citibank switch from Visa to Amex, they are appealing to the same group of cardholders with the same spending patterns.
25) How can groups like "Americans for Consumer Education and Competition" be expected to be objective? [(ACEC is financially supported by VISA USA]. They suggest merchants want to pass along the interchange fees to consumers. The fact is that this litigation has nothing to do with "shifting' costs from merchants to consumers, but rather it is about reforming the system so that competition works and will drive total costs down so that both merchants and cardholders have lower costs.
26) The Bank of America announced acquisition of MBNA will only worsen the competitive problems faced by merchants, and will further reduce competition in the credit card business.
[Source: WayTooHigh.com]
Friday, July 07, 2006
"Credit Cards 'Should Go PIN'" (The Australian)
Excerpt: "In the US, technology is even further behind but interchange revenues are three times as high. Conversely, technology is more advanced in some debit systems where interchange fees are zero."
[Source: The Australian]
[Source: The Australian]
Thursday, July 06, 2006
Wednesday, July 05, 2006
Monday, July 03, 2006
European Union Slams MasterCard® (click here)
Just days after MasterCard® thought they won a move on the legal game board they immediately issued a press release. This may have energized its public relations hacks. But, just as quickly, the credit card association was again shoved back by the latest European Union notice.
Even larger than Britain's Office of Fair Trade investigation, is the European commissions weight. The EU is now overshadowing and charging that MasterCard® and Visa® practice restrictive, anti-competitive fixing of merchant interchange fees that millions of retailers must pay for accepting its payment cards.
While MasterCard's® website crafted a lawyerly explanation how they and Visa® are "independent", remember, both have been owned by the same banks. With the wink of an eye, they are just as "independent" as two siblings with the same parents. But, this time they again stand accused of hampering competition between the banks.
Rarely have we encountered such a deliciously blatant media misstep as was their rush to hastily wipe their hands before getting sharply slapped again. MasterCard's® website posted a reply countering our assertion that we believe they practice illegal, collusive price-fixing by agreement.
The New York Times' Paul Meller (Sat, July 1) reported that if the European Commission "rules against MasterCard®, the company could be forced to end a transaction charge known as a cross-border interchange fee." This also raises another question about why interchange fees are not cost-based but are a fraction of the level paid by U.S. merchants.
We would think that fraud rates and technology disadvantages are greater in less developed nations. Yet, as reported in the NYT's, "in Europe, the fees range from 0.8 percent of the value of a transaction when it involves a card with a computer chip to 1.3 percent when it involves a signature-based transaction." The average rate in the U.S. is 1.70 percent. The new American Express®-branded bank cards is expected to be much higher.
[source: WayTooHigh commentary, with link to June 29, Reuters article]
Visa® and MasterCard's® Very Unpatriotic July 4th Gift to America (WayTooHigh.com)
[Update. On July 5th, oil reached a record $75 per barrel]
Consumers are bracing for more shameless windfall profiteering by Visa® and MasterCard® on Independence Day - and beyond - in the United States.
With oil prices reaching $74 a barrel, the banks are poised to reap even higher merchant interchange fees at the pumps. When home prices soared, even realtors lowered their traditional 6% fees, but the brazen profiteering by the banks shows no let up.
Because the two giant credit card cartels, with 85% of the market demands a percent of the sales from most credit card transactions, as gas prices double so too have their very un-American profitering during this national energy crisis. In 1999, when oil prices were just $9 a barrel, the interchange fees were much smaller. But, since crude-oil prices have tripled since 2002, it raises the question of just how much more money the banks reaped from these record rates.
[Source: WayTooHigh.com]
Consumers are bracing for more shameless windfall profiteering by Visa® and MasterCard® on Independence Day - and beyond - in the United States.
With oil prices reaching $74 a barrel, the banks are poised to reap even higher merchant interchange fees at the pumps. When home prices soared, even realtors lowered their traditional 6% fees, but the brazen profiteering by the banks shows no let up.
Because the two giant credit card cartels, with 85% of the market demands a percent of the sales from most credit card transactions, as gas prices double so too have their very un-American profitering during this national energy crisis. In 1999, when oil prices were just $9 a barrel, the interchange fees were much smaller. But, since crude-oil prices have tripled since 2002, it raises the question of just how much more money the banks reaped from these record rates.
[Source: WayTooHigh.com]
Sunday, July 02, 2006
U.S. Senate Interchange Hearing (WayTooHigh.com)
Later this month, we understand that the previously postponed U.S. Senate Judiciary hearing might occur in Washington. As the first lead plaintiff to file the new round of antitrust suits (June 22, 2005) against the two leading credit card associations and their leading member banks, we also are the most vocal.
As the most frequently profiled proponent for rescuing merchants and consumers from what we alleged is a $30 billion annual price-fixing scheme, we hope to be invited to testify. Just as compelling as our experiences as a longtime merchant and owner of an ecommerce business, is this link from MasterCard®. But, in a different way. Many of the claims they assert are challenged within the nearly 400 prior postings on WayTooHigh.com - The Credit Card Interchange Report.
[Source: WayTooHigh.com]
As the most frequently profiled proponent for rescuing merchants and consumers from what we alleged is a $30 billion annual price-fixing scheme, we hope to be invited to testify. Just as compelling as our experiences as a longtime merchant and owner of an ecommerce business, is this link from MasterCard®. But, in a different way. Many of the claims they assert are challenged within the nearly 400 prior postings on WayTooHigh.com - The Credit Card Interchange Report.
[Source: WayTooHigh.com]
Friday, June 30, 2006
"EU Steps Up Pressure on MasterCard Interbank Fees" (Reuters)
In a statement, the Commission said it "takes the preliminary view that MasterCard restricts competition between member banks by pre-determining a minimum price retailers must pay for accepting MasterCard and Maestro branded payment cards.
"The Commission's preliminary view is that such behavior is contrary to the EC Treaty's ban on restrictive business practices."
The statement of objections related to the company's "cross-border interchange fees," or inter-bank fees paid by merchant banks to card-issuing banks for over-the-counter payments with MasterCard or Maestro cards.
[Source: Reuters]
"The Commission's preliminary view is that such behavior is contrary to the EC Treaty's ban on restrictive business practices."
The statement of objections related to the company's "cross-border interchange fees," or inter-bank fees paid by merchant banks to card-issuing banks for over-the-counter payments with MasterCard or Maestro cards.
[Source: Reuters]
"EU Charges MasterCard With Price-Fixing" (AP)
European Union's antitrust regulator has "formally charged the credit card company with breaking its rules by restricting competition between banks."
------
The European Commission said Friday it had charged MasterCard Inc. with fixing the fees retailers must pay for accepting MasterCard and Maestro branded cards, saying this limits competition between banks that use the service.
"The commission's preliminary view is that such behavior is contrary to the EC Treaty's ban on restrictive business practices," it said in a statement.
{source: AP, Click here to view article]
------
The European Commission said Friday it had charged MasterCard Inc. with fixing the fees retailers must pay for accepting MasterCard and Maestro branded cards, saying this limits competition between banks that use the service.
"The commission's preliminary view is that such behavior is contrary to the EC Treaty's ban on restrictive business practices," it said in a statement.
{source: AP, Click here to view article]
Thursday, June 29, 2006
MasterCard Charged Over Antitrust Rules (Financial Times)
By Tobias Buck in Brussels, Financial Times, Published: June 29 2006
The credit card group MasterCard has been formally charged by the European Union's top antitrust regulator, accused of breaking its rules by restricting competition between banks.
It is the latest escalation in a long-running antitrust battle between the European Commission and the credit card industry, and is the second time MasterCard has received antitrust charges from Brussels. It follows the Commission's attack on groups such as Visa and MasterCard in April, when Neelie Kroes, the EU competition commissioner, accused them of making "outrageous" profits and operating a "closed shop."
[Source: Financial Times - Subscription required]
The credit card group MasterCard has been formally charged by the European Union's top antitrust regulator, accused of breaking its rules by restricting competition between banks.
It is the latest escalation in a long-running antitrust battle between the European Commission and the credit card industry, and is the second time MasterCard has received antitrust charges from Brussels. It follows the Commission's attack on groups such as Visa and MasterCard in April, when Neelie Kroes, the EU competition commissioner, accused them of making "outrageous" profits and operating a "closed shop."
[Source: Financial Times - Subscription required]
"Has Interchange Hype Brought Us to the Brink of a Surcharging Sea Change" (Aneace's Blog)
[Reprinted with permission, The author, Aneace Haddad is founder and chairman of payment software company Welcome Real-time, based in Aix-en-Provence, in the south of France.]
By Aneace Haddad, June 12, 2006, Aneace's Blog
By Aneace Haddad, June 12, 2006, Aneace's Blog
If you were a merchant, would you seriously consider adding a surcharge on credit card sales or giving a discount for cash? Probably not, if you felt that your customers would get angry and take their business somewhere else. But what if customers understood that you had no choice? What if they didn’t get angry with you, but with banks instead?
What if your customers kept seeing news reports like this one on Good Morning America about a gas station owner that can hardly make a profit but is paying $1600 a week in credit card fees? How many people have not heard the theme, "gas station owners make less money, or even lose money, when customers pay with plastic"?
What if customers were aware of how much money banks make on a gallon of gasoline? Local papers like this one in New Jersey break apart the cost of gasoline to demonstrate the impact of interchange. "The Legislature needs to pass a law requiring that all credit card fees for gasoline purchases be added to a bill rather than included in the price," says the writer. "This lets New Jersey residents cut out the costs of the middle man. For those who want their air miles, let them pay for the air miles separately.”
Air miles? What’s that got to do with the cost of credit card payments? More and more people now know that credit card companies fund their loyalty programs entirely out of the interchange revenue they receive from merchants. Maybe the general public doesn’t have a sense of this practice yet, but people in our industry are certainly starting to understand it. Some banks even report interchange revenue as a net figure after deducting the cost of their rewards programs! Some nerve, right? Why should merchants be financing the bank's loyalty program? This practice can’t last. It’s so lame that it has to fall apart. If and when that happens, what will happen with traditional rewards programs? Will they go out the door, like they did in Australia?
What if you knew that many of your customers had heard about MasterCard’s IPO; billed as the biggest since Google, in articles (here is one) and on mainstream TV news? Anybody who heard about the IPO definitely heard about MasterCard’s "ongoing legal battles over what are known as interchange fees", with "dozens of lawsuits across the nation", many of which specifically demand the right for merchants to surcharge credit card payments.
What if you saw the ABC News TV segment on how some merchants are already offering discounts for cash payments? The reporter concludes with the line, “Paying in cash instead of credit cards could lead to more money saved for everyone.
”What if you read a similar article in USA Today? The newspaper reports that cash discounts at US gas stations are causing card usage to plummet in some stores. One retailer explains how only 18% of customers are now paying with credit cards, down from 60% to 70% before he started offering a cash discount. Plus, high margin sales inside the store of chips, candy, soft drinks and other items have risen as more people are coming into the store to pay rather than inserting credit cards at the pump and driving off. What a fantastic added benefit! Every convenience store owner is dying to get people to buy more stuff in the store!
What if you were convinced that more and more people were angry with bank fees anyway? Fees for using an ATM, fees for late payments, fees for using their card overseas, and on and on and on. There didn't seem to be so much talk about all of these fees a few years ago. But today, wouldn't people understand your desire to avoid paying fees as well?
What if adding a surcharge was easy to do? Say you had a key on your cash register that calculates a 2% surcharge, so clerks don’t have to fumble with a calculator and the fee is automatically added to the customer’s receipt, like this restaurant in Sydney. Why wouldn’t you have your clerks press that key? Of course, this is allowed in Australia, but more and more countries are also forcing Visa and MasterCard to allow merchants to surcharge.
The Sydney Morning Herald reports that 19.4% of Australia’s top retailers plan to add credit card surcharges within the next six months. In 2003, Australia’s Reserve Bank removed restrictions on surcharging but few merchants followed. Conditions now seem to be changing, with both of Australia’s major newspapers talking of a “surcharging sea change”.
In fact, the term “sea change” was used in this exact context in Australia in 2002, before the reform, in a document commenting on the Reserve Bank's proposals: “The Financial Services Consumer Policy Centre supports the RBA’s principle of allowing surcharging. The Centre takes the view that this new policy would have slow take up rates by merchants who for so long have been accustomed to embedding the cost of merchant fees. However, the Centre also takes the view that in due course a cultural sea change will develop whereby merchants begin to feel more comfortable with the surcharge.”Thanks to lots of press coverage on rising gasoline prices, increased card usage and even MasterCard’s IPO, interchange fees are no longer a “hidden tax” that people are unaware of. For the first time in credit card history, the general public now has some idea of the fact that merchants have to pay a lot of money to accept cards. This is new. We have never been here before. Then there are all the reports on "fee gouging" by banks, a topic which has gone mainstream in a big way in just the past couple of years. This is all very new. Put it all together, and it makes sense for merchants to be seriously looking at credit card surcharges. The public could be on their side.
Merchants in the US have been allowed to offer a discount for cash purchases since 1975, yet by the early 1980s, less than 10 percent of retailers did so and the practice became even less common after that. Merchants in the UK, Sweden and the Netherlands have been able to surcharge credit card payments since the 1990s, but few chose to do so. Central bankers and economists have assumed that merchants simply don’t want to risk a negative reaction from customers. Some studies point to another reason.
A study on surcharging in the Netherlands found that only 10 percent of merchants surcharge (Vis and Toth, 2000). However, only 28 percent of merchants interviewed were aware of a court decision which allowed them to surcharge. There clearly wasn't the same amount of interchange hype six years ago. The study also found that of the firms that did not surcharge, 60 percent stated that they did not surcharge because they felt that acceptance of credit cards was a service provided as part of the shopping experience and charging for it was viewed as being “unfriendly.
”But what if most merchants interviewed in the study were aware they could now surcharge? What if merchants felt confident that customers understood that banks were making too much money on credit card transactions, and would not see the merchant as being “unfriendly” for surcharging? How would merchants have answered the survey under such radically different market conditions?
In the past, banks could focus on getting cards out and encouraging usage. Interchange revenue seemed to come by itself, almost by magic, with little thought about merchants. That model doesn’t work anymore. The engine is broken. Merchants are gaining increased control and relevance in the payments world. They are angry about card fees and want to stop interchange. Encourage cash over cards? Very few would hesitate if they knew they could get away with it. And why blame them?
How will banks end up responding? The easy way out is to give up on fixing the source of the problem, concentrate everything on litigation to try to keep things as they are for as long as possible, and get ready for a world with no interchange fees. I've heard payment association executives suggest that this was the probable outcome. The idea of giving up like that makes my blood boil. The hard way is to fight and create much more valuable payment products and services that solve major problems for merchants, problems which merchants would have lots of difficulty solving without a general purpose payment card. That's hard, but immensely more satisfying. Our industry has tremendous energy. But it's not channelled right. It would be more effective for banks to shift their frustration with merchants away from litigation and channel it into making payment cards more valuable for merchants.
[Source: Aneace's Blog]
Wednesday, June 28, 2006
"Senate Committee To Investigate Interchange Fees" (Competition Law 360)
The Senate Judiciary Committee plans to dive into a heated debate over credit card interchange rates and potential antitrust concerns at an upcoming hearing.
[subscription required]
[subscription required]
Credit Card Branded Trick Debuts This Weekend (WayTooHigh.com)
[The billable hours charged by the named defendants' legal and PR readers of WayTooHigh.com may soar from this posting. So too may the potential windfall profits by introducing more costly interchange fees as premium branded credit cards are introduced.]
Bank of America and American Expresss Join to Sneak a Surreptitious Trojan Horse on Consumers and Businesses Beginning on Independence Day Weekend
Here we go. If merchants and consumers thought interchange fees were Way Too High in the past, just wait.
This holiday weekend, with near record gas prices, motorists are again going to pay upwards of $1.50 per fill-up in fees directly to the credit card companies and banks. But, that is just the beginning. Last year, we first warned of a new scheme from several banks to issue American Express® branded cards to enhance revenues at the expense of retailers and cardholders.
Now it is upon us.
Reuters® just announced that Bank of America® will introduce on Friday its first American Express®-branded cards. This is a double hit on consumers. First, near record interchange fees at the pumps and now more confusing interchange fees to boost the banks' revenues.
It remains unclear whether the new cards will incur a higher interchange fee. As background, last December we provided this commentary: "American Express® tarnished, the brand leader's cache faces saturation."
Bank of America and American Expresss Join to Sneak a Surreptitious Trojan Horse on Consumers and Businesses Beginning on Independence Day Weekend
Here we go. If merchants and consumers thought interchange fees were Way Too High in the past, just wait.
This holiday weekend, with near record gas prices, motorists are again going to pay upwards of $1.50 per fill-up in fees directly to the credit card companies and banks. But, that is just the beginning. Last year, we first warned of a new scheme from several banks to issue American Express® branded cards to enhance revenues at the expense of retailers and cardholders.
Now it is upon us.
Reuters® just announced that Bank of America® will introduce on Friday its first American Express®-branded cards. This is a double hit on consumers. First, near record interchange fees at the pumps and now more confusing interchange fees to boost the banks' revenues.
It remains unclear whether the new cards will incur a higher interchange fee. As background, last December we provided this commentary: "American Express® tarnished, the brand leader's cache faces saturation."
This new scheme to have cardholders use the more expensive American Express® brand payment cards ties in to our earlier posting about why some banks might be like drug dealers; they entice cardholders to switch to new, premium cards with no annual fees and a rich rewards program with double points until next year. Then, what happens after you are hooked? What is unclear is what the added interchange fees will be; the newly branded cards will be connected to the American Express® payment network.
[Source: WayTooHigh.com]
Tuesday, June 27, 2006
UPDATE....U.S. Senate Judiciary Hearing on Interchange is Postponed
[Originally posted on June 17, 2006]
The U.S. Senate interchange hearing scheduled for Wednesday has been postponed and no immediate rescheduled date has been tendered. Click here for info.
[source: WayTooHigh.com}
The U.S. Senate interchange hearing scheduled for Wednesday has been postponed and no immediate rescheduled date has been tendered. Click here for info.
[source: WayTooHigh.com}
Monday, June 26, 2006
"$105 a Barrel" Would Mean More Windfall Profits for Credit Card Companies (WayTooHigh.com)
[repost from May 29, 2006 - Timely commentary in advance of U.S. Independence Day's peak holiday travel]
A dire projection from Goldman Sachs' senior executive suggests that a serious disruption to oil supplies could deliver soaring prices as high as $105 a gallon. While this will further wreck the economy and the oil markets, we think credit card companies will prosper.
Even at current record levels, consumers are wondering why the banks are permitted to flood their vaults at the expense of motorists from service station interchange fees that are based on a percent of the sale. Even greedy home realtors have lowered their rates as housing prices have doubled and tripled. Today it is common to have realtors negotiate and introduce sub-six-percent traditional fees, yet the credit card associations have their rates fixed. And, when motorists unsuspectingly use a debit card and it gets recorded as a credit card, a whole new level of excess is uncovered at the pump. Rather than paying a flat fee, even though funds are instantly deducted from a debit card account, if it is transacted as a credit card, the merchant pays a much higher rate.
During the energy crisis last fall, we contacted the CEO's of Visa® and MasterCard® urging them to rescind interchange fees at service stations.
Since last Labor Day, as American's again prepare for another peak holiday driving season, this Memorial Day Weekend boasts another opportunity to question why the two leading credit card companies (and now the new additional MasterCard® shareholders) are profiting with record interchange fees when motorists fill up? Why are credit card companies earning more than the service stations?
As gas prices double, seemingly, so are credit card merchant interchange fees - and then some. As it costs upwards of sixty dollars to top off a cars tank, consumers are more inclined to pay with credit; they often don't otherwise have enough cash as they did when it cost twenty or thirty dollars for gas. This means, the banks' windfall profiteering is accelerated and enhanced at the expense of drivers across the nation.
[source: WayTooHigh.com]
A dire projection from Goldman Sachs' senior executive suggests that a serious disruption to oil supplies could deliver soaring prices as high as $105 a gallon. While this will further wreck the economy and the oil markets, we think credit card companies will prosper.
Even at current record levels, consumers are wondering why the banks are permitted to flood their vaults at the expense of motorists from service station interchange fees that are based on a percent of the sale. Even greedy home realtors have lowered their rates as housing prices have doubled and tripled. Today it is common to have realtors negotiate and introduce sub-six-percent traditional fees, yet the credit card associations have their rates fixed. And, when motorists unsuspectingly use a debit card and it gets recorded as a credit card, a whole new level of excess is uncovered at the pump. Rather than paying a flat fee, even though funds are instantly deducted from a debit card account, if it is transacted as a credit card, the merchant pays a much higher rate.
During the energy crisis last fall, we contacted the CEO's of Visa® and MasterCard® urging them to rescind interchange fees at service stations.
Since last Labor Day, as American's again prepare for another peak holiday driving season, this Memorial Day Weekend boasts another opportunity to question why the two leading credit card companies (and now the new additional MasterCard® shareholders) are profiting with record interchange fees when motorists fill up? Why are credit card companies earning more than the service stations?
As gas prices double, seemingly, so are credit card merchant interchange fees - and then some. As it costs upwards of sixty dollars to top off a cars tank, consumers are more inclined to pay with credit; they often don't otherwise have enough cash as they did when it cost twenty or thirty dollars for gas. This means, the banks' windfall profiteering is accelerated and enhanced at the expense of drivers across the nation.
[source: WayTooHigh.com]
Saturday, June 24, 2006
"World War on the Cards" (Peter Mair)
We should take our lead from Europe and move against excessive bank interchange fees on credit cards.
By Peter Mair with an Austrialian prospective
For the first time in a decade, the regulation of Australia's card payment system is being openly discussed by a parliamentary committee and further independent review is a possibility. As is usual in these matters, Australia is not alone. Among other reviews under way, the European Commission is looking for best-practice consistency between the different payment systems that will form the single euro payments area.
The scene is being set for reforms to card-payment systems that will eventually touch everyone, from the biggest businesses to the smallest households. One focus is the disruptive effects of excessive interchange fees taken by banks for credit-card transactions.
The European Commission, now seeking submissions to a formal inquiry, has posed questions in the interim with a rhetorical flourish that will be sobering to card-issuing banks and card scheme operators. The Commission's assessment is consistent with that of Britain's Office of Fair Trading, among others inclined this way internationally: in essence, card-scheme cartels are taking excessive profits.
This imposes unjustifiably high fees on retailers, unfairly increasing retail prices paid by consumers. On that foundation, the Commission is considering "cost-based pricing" to correct current distortions to efficiency in retail payment systems.
Looking ahead, the Commission foresees significant structural change in the card-payments industry, not the least of which is compatible infrastructure and technical standards to facilitate innovation and integration of domestic payment systems, about to be closely linked. Some "best practice" pacemakers in Europe see electronic-money cards as an efficient medium for small payments made face-to-face, and they will want an environment conducive to their acceptance.
In Australia, a tentative consensus about some contentious issues emerged in recent open discussion with the parliamentary economics committee. This was a timely contribution from Australia to the unfolding global debate: submissions from major industry players and transcripts of the hearings are available.
Take the proposition of reduced merchant service fees for retailers flowing through to consumers as lower retail prices, for example. The consensus achieved is likely to confront those credit-card operators who contend that consumers in Australia are "no better off" after interchange fees were reduced.
Similarly persuasive was a theme that the 45 per cent of adults without a credit card are disadvantaged when retailer's prices are loaded with costs for others paying with credit cards.
Not surprisingly the hearings revealed a pervasive sense of confusion about the costs and prices applying to retail payment transactions, especially card payments. Prices, whether explicit or hidden to varying degrees, are considered confusing to consumers, not least the purchase reward schemes and compulsory free-credit that are often of no practical benefit to cardholders.
Across retail payments systems generally, cost-price relationships are randomly distorted by cross-subsidisation arrangements, funded partly by bartering interest-free deposit balances for free transactions and otherwise by "all you can eat" schemes - allowing customers unlimited transactions free of additional charge, after paying fixed annual or monthly fees.
Against this background, a nominally plausible consensus for setting "cost-based" interchange fees wilted under ever more technical and fanciful arguments about which costs, including notional costs, might be deemed eligible for inclusion. There were also glimpses of relief. One was Britain's proposal to regulate against any allowance for interest-free credit, considered discretionary and thus "extraneous".
Similarly, the continuing discretionary exposure of credit card transactions to "signature fraud" disparages claims to include fraud costs. Ultimately if there were to be little in the way of eligible costs remaining to be recovered as "interchange fees", the sensible judgement may favour simply setting interchange fees to zero, at least for mature network payment schemes.
More generally some "red herrings" that typically colour credit-card policy discussions were more or less laid to rest. One contention, that retailers themselves should surcharge or discourage credit transactions, is now conceded to be an unlikely expectation. Similarly, lingering issues of regulatory equity schemes, such as American Express and Diners Club, operating without interchange fees may be better addressed by taxing as personal income flyer-point rewards left in the hands of employees that accrue from spending on business accounts.
The next steps for Australia to foster efficiency and competition in its retail payments systems will depend on conclusions the parliamentary committee may draw from its inquiries and related recommendations it may put to parliament in due course.
Hopefully, there will also be some cross-fertilisation of regulatory thinking across different countries, coming to grips with issues and sharing considerable common ground. There is also the sensible prospect of global linkages with Australia that are conducive to seamlessly efficient and unquestionably safe cross-border payments. In time those links will embrace Eftpos systems and the debit cards, with lines of credit and remote-payment capabilities, which will displace conventional credit cards.
[source: Peter Mair]
By Peter Mair with an Austrialian prospective
For the first time in a decade, the regulation of Australia's card payment system is being openly discussed by a parliamentary committee and further independent review is a possibility. As is usual in these matters, Australia is not alone. Among other reviews under way, the European Commission is looking for best-practice consistency between the different payment systems that will form the single euro payments area.
The scene is being set for reforms to card-payment systems that will eventually touch everyone, from the biggest businesses to the smallest households. One focus is the disruptive effects of excessive interchange fees taken by banks for credit-card transactions.
The European Commission, now seeking submissions to a formal inquiry, has posed questions in the interim with a rhetorical flourish that will be sobering to card-issuing banks and card scheme operators. The Commission's assessment is consistent with that of Britain's Office of Fair Trading, among others inclined this way internationally: in essence, card-scheme cartels are taking excessive profits.
This imposes unjustifiably high fees on retailers, unfairly increasing retail prices paid by consumers. On that foundation, the Commission is considering "cost-based pricing" to correct current distortions to efficiency in retail payment systems.
Looking ahead, the Commission foresees significant structural change in the card-payments industry, not the least of which is compatible infrastructure and technical standards to facilitate innovation and integration of domestic payment systems, about to be closely linked. Some "best practice" pacemakers in Europe see electronic-money cards as an efficient medium for small payments made face-to-face, and they will want an environment conducive to their acceptance.
In Australia, a tentative consensus about some contentious issues emerged in recent open discussion with the parliamentary economics committee. This was a timely contribution from Australia to the unfolding global debate: submissions from major industry players and transcripts of the hearings are available.
Take the proposition of reduced merchant service fees for retailers flowing through to consumers as lower retail prices, for example. The consensus achieved is likely to confront those credit-card operators who contend that consumers in Australia are "no better off" after interchange fees were reduced.
Similarly persuasive was a theme that the 45 per cent of adults without a credit card are disadvantaged when retailer's prices are loaded with costs for others paying with credit cards.
Not surprisingly the hearings revealed a pervasive sense of confusion about the costs and prices applying to retail payment transactions, especially card payments. Prices, whether explicit or hidden to varying degrees, are considered confusing to consumers, not least the purchase reward schemes and compulsory free-credit that are often of no practical benefit to cardholders.
Across retail payments systems generally, cost-price relationships are randomly distorted by cross-subsidisation arrangements, funded partly by bartering interest-free deposit balances for free transactions and otherwise by "all you can eat" schemes - allowing customers unlimited transactions free of additional charge, after paying fixed annual or monthly fees.
Against this background, a nominally plausible consensus for setting "cost-based" interchange fees wilted under ever more technical and fanciful arguments about which costs, including notional costs, might be deemed eligible for inclusion. There were also glimpses of relief. One was Britain's proposal to regulate against any allowance for interest-free credit, considered discretionary and thus "extraneous".
Similarly, the continuing discretionary exposure of credit card transactions to "signature fraud" disparages claims to include fraud costs. Ultimately if there were to be little in the way of eligible costs remaining to be recovered as "interchange fees", the sensible judgement may favour simply setting interchange fees to zero, at least for mature network payment schemes.
More generally some "red herrings" that typically colour credit-card policy discussions were more or less laid to rest. One contention, that retailers themselves should surcharge or discourage credit transactions, is now conceded to be an unlikely expectation. Similarly, lingering issues of regulatory equity schemes, such as American Express and Diners Club, operating without interchange fees may be better addressed by taxing as personal income flyer-point rewards left in the hands of employees that accrue from spending on business accounts.
The next steps for Australia to foster efficiency and competition in its retail payments systems will depend on conclusions the parliamentary committee may draw from its inquiries and related recommendations it may put to parliament in due course.
Hopefully, there will also be some cross-fertilisation of regulatory thinking across different countries, coming to grips with issues and sharing considerable common ground. There is also the sensible prospect of global linkages with Australia that are conducive to seamlessly efficient and unquestionably safe cross-border payments. In time those links will embrace Eftpos systems and the debit cards, with lines of credit and remote-payment capabilities, which will displace conventional credit cards.
[source: Peter Mair]
MasterCard's® Media Machine" (WayTooHigh.com
Was it just us, or did others also notice the immediacy of MasterCard's® news release? It celebrated the recent UK Office of Fair Trade scrapping of its probe into whether past transaction fees charged by MasterCard® were too high.
The appearance is that the mighty and costly pack of public relations and media hirelings for the card association swooped down and feasted on this like the flying monkeys from The Wizard of Oz.
This news captured their glee. But, while the giant credit card company addressed abandoning one aspect of the OFT case, the fact is that it is not over. While MasterCard® drew attention to the probe over previous transactions, the OFT will continue to investigate.
According to news reports, OFT Chief Executive John Fingleton said: 'We still believe that collectively agreed interchange fees go against the principles and letter of competition law and are harmful to consumers, who see higher prices as a result of these fees.' Mr Fingleton added that the OFT intended to use the basis of the original case to tackle credit card interchange fees as a whole, rather than waste resources on pursuing one company's previous fee. The OFT continues to investigate.
[source: WayTooHigh.com]
The appearance is that the mighty and costly pack of public relations and media hirelings for the card association swooped down and feasted on this like the flying monkeys from The Wizard of Oz.
This news captured their glee. But, while the giant credit card company addressed abandoning one aspect of the OFT case, the fact is that it is not over. While MasterCard® drew attention to the probe over previous transactions, the OFT will continue to investigate.
According to news reports, OFT Chief Executive John Fingleton said: 'We still believe that collectively agreed interchange fees go against the principles and letter of competition law and are harmful to consumers, who see higher prices as a result of these fees.' Mr Fingleton added that the OFT intended to use the basis of the original case to tackle credit card interchange fees as a whole, rather than waste resources on pursuing one company's previous fee. The OFT continues to investigate.
[source: WayTooHigh.com]
Friday, June 23, 2006
"Merchants sue MasterCard, Visa over ‘Exorbitant’ Interchange Rates" (Internet Retailer)
[Repost from June 28, 2005. Click above to view].
One year ago, on June 22, 2005, the first of the new interchange antitrust class-action litigations was filed. For background on one of those profiled articles, click here.
One year ago, on June 22, 2005, the first of the new interchange antitrust class-action litigations was filed. For background on one of those profiled articles, click here.
Merchant Interchange Fees May Skyrocket (WayTooHigh.com)
[repost from Dec 20, 2005]
In what retailers are calling a scheme by Citigroup Inc.'s credit card business, merchants are poised to pay even more from the nearly 100 separate interchange fees. Citigroup is now introducing five American Express-branded charge cards which may come with higher interchange fees. With AmEx's alliance with Citigroup, we anticipate that CitiCards will aggressive market the "value" of converting to an AmEx Card. The benefit to Citigroup is they get higher fees from merchants. What consumers don't know is that these higher fees are a hidden tax on them.
[Source: WayTooHigh.com]
Thursday, June 22, 2006
Tuesday, June 20, 2006
"Fresh Focus on MasterCard Charges" (MyFinances.Co.Uk)
"The OFT is also investigating interchange fees charged by rival credit card firm Visa."
[source: MyFinances.Co.UK]
[source: MyFinances.Co.UK]
Monday, June 19, 2006
What Are Credit Card vs. Check Writing Risk Factors? (WayTooHigh.com)
Covering the risks of credit card fraud has been a primary justification for higher interchange fees, according to the card associations and banks. And, the value to merchants by accepting credit and debit cards rather than checks have been another promotional tool touted by the credit card companies.
Remember, there are no interchange fee when writing checks. There are even no interchange fees when using a PIN debit card in Canada either.
As an ecommerce and retail business, our rate of fraud and bad check writing fees are practically zero. We cannot recall the last time there was a bad or fraudulent check presented at 30 Minute Photos Etc. Perhaps, it might have been two or three years ago. We therefore are particularly curious about the card associations’ arguments. While credit card fraud is a real issue, the value of accepting electronic payments over checks to reduce fraud is, in our case, questionable.
Certainly there are adjustments to risk factors for different businesses regionally and other factors which weigh heavily in a shift for various risks. However, the argument that credit cards are safer than checks and thus the reason for charging interchange fees is in question, at least at 30 Minute Photos Etc.
[source: WayTooHigh.com]
Friday, June 16, 2006
"Congress Eyes Cards Interchange" (Credit Union Daily Journal)
[Extracted from the Fri. June 16th Credit Union Daily Journal]
"Congress announced plans Thursday to step into the cards interchange wars with hearings on credit card interchange rates. Retailers have filed more than 40 lawsuits against card giants MasterCard and Visa, claiming the two dominant players illegally conspire to set the rates on transactions. The market has grown exponentially with the decline of paper checks and is estimated at as much as $30 billion a year, with 75% of those interchange fees going to one of the two card giants. Credit unions and other small players in the market have become pawns in the battle of giants, with MasterCard cutting deals discount deals with the big banks that control it, and huge retailers, like Wal-Mart cutting their own discount deals. The Senate Judiciary Committee has scheduled a hearing on the issue for June 28. At least one senator, Democrat Christopher Dodd of Connecticut, said the Congress or the Federal Reserve should consider federal regulation for the market for interchange, as other countries like Australia and Canada, have done recently. MasterCard and Visa dominate the markets in both of those countries, too."
[source: Credit Union Daily Journal]
"Congress announced plans Thursday to step into the cards interchange wars with hearings on credit card interchange rates. Retailers have filed more than 40 lawsuits against card giants MasterCard and Visa, claiming the two dominant players illegally conspire to set the rates on transactions. The market has grown exponentially with the decline of paper checks and is estimated at as much as $30 billion a year, with 75% of those interchange fees going to one of the two card giants. Credit unions and other small players in the market have become pawns in the battle of giants, with MasterCard cutting deals discount deals with the big banks that control it, and huge retailers, like Wal-Mart cutting their own discount deals. The Senate Judiciary Committee has scheduled a hearing on the issue for June 28. At least one senator, Democrat Christopher Dodd of Connecticut, said the Congress or the Federal Reserve should consider federal regulation for the market for interchange, as other countries like Australia and Canada, have done recently. MasterCard and Visa dominate the markets in both of those countries, too."
[source: Credit Union Daily Journal]
5-Cent Interchange Fees? (WayTooHigh.com)
According to Digital Trends, vending machines and "micropayments" are the next growth area in credit card acceptance. This business model for transacting payments under 5 dollars can be achieved with flat interchange fees of 5 percent. When someone charges a dollar for a can of soda at a vending machine, the interchange fee would be but pennies. So, why is it that retailers can be forced to pay upwards of 25-cents to transact the same one-dollar order at the sales counter?
[commentary: WayTooHigh.com]
[commentary: WayTooHigh.com]
Thursday, June 15, 2006
"Merchants Welcome Senate Investigation into Credit Card Fee Price-Fixing" (Merchants Payments Coalition)
WASHINGTON, June 15 /PRNewswire/ -- The Merchants Payments Coalition today welcomed the decision of Senate Judiciary Committee Chairman Arlen Specter, R- Pa., to investigate credit card companies and their anti-competitive fee-setting practices in a hearing to be held later this month.
"We wish to thank Senator Specter for scheduling this very significanthearing," said Mallory Duncan, chairman of the MPC and senior vice president and general counsel at the National Retail Federation. "TheSenate Judiciary Committee is an important venue to look into credit card companies and their illegal price-fixing practices in setting interchange fees."
The Senate Judiciary Committee announced today that it will hold a hearing on "Credit Card Interchange Rates: Anti-trust Concerns?" on Wednesday, June 28th. The hearing is scheduled for 9:30 a.m. in Room 226 ofthe Senate Dirksen Office Building.
Interchange is a percentage of each transaction that Visa and MasterCard banks collect from retailers every time their credit or debit cards are used to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but averages close to 2 percent for credit card and signature debit transactions. Total credit and debit card interchange collected by Visa and MasterCard amounted to $26.32 billion in 2004, according to the Nilson Report, a business magazine that covers the credit card industry.
Unlike other credit card fees that show up on a monthly statement, the interchange fees paid by consumers are not disclosed to cardholders becauseVisa and MasterCard forbid merchants from disclosing them on receipts. "Our members believe it's time to hold Visa and MasterCard accountable and put an end to their illegal price-fixing, their lack of openness with the public and the record windfall profits they're making as a result," said Duncan.
The Merchants Payments Coalition is a group of 20 trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that acceptdebit and credit cards. MPC is fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7million stores with approximately 50 million employees.
[Source: Merchants Payments Coalition]
"We wish to thank Senator Specter for scheduling this very significanthearing," said Mallory Duncan, chairman of the MPC and senior vice president and general counsel at the National Retail Federation. "TheSenate Judiciary Committee is an important venue to look into credit card companies and their illegal price-fixing practices in setting interchange fees."
The Senate Judiciary Committee announced today that it will hold a hearing on "Credit Card Interchange Rates: Anti-trust Concerns?" on Wednesday, June 28th. The hearing is scheduled for 9:30 a.m. in Room 226 ofthe Senate Dirksen Office Building.
Interchange is a percentage of each transaction that Visa and MasterCard banks collect from retailers every time their credit or debit cards are used to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but averages close to 2 percent for credit card and signature debit transactions. Total credit and debit card interchange collected by Visa and MasterCard amounted to $26.32 billion in 2004, according to the Nilson Report, a business magazine that covers the credit card industry.
Unlike other credit card fees that show up on a monthly statement, the interchange fees paid by consumers are not disclosed to cardholders becauseVisa and MasterCard forbid merchants from disclosing them on receipts. "Our members believe it's time to hold Visa and MasterCard accountable and put an end to their illegal price-fixing, their lack of openness with the public and the record windfall profits they're making as a result," said Duncan.
The Merchants Payments Coalition is a group of 20 trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that acceptdebit and credit cards. MPC is fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7million stores with approximately 50 million employees.
[Source: Merchants Payments Coalition]
Plasma TV's vs Interchange Fees (WayTooHigh.com)
(repost from May 13, 2006)
Just a few years ago, a 50 inch high-definition plasma TV cost more than $12,000. Today's versions are much better, yet costs under $2,000. This universal technology model should parallel merchant interchange fees too.
Seemingly, it works everywhere, but where the banks control an (alledged) illegal price-fixing cartel.
Remember, it was technology which brought down the actual cost for electronic payments to a fraction of the rates charged when manual charge card imprinters with multi-layer carbon copies were required.
See "Moore's Law" posting.
[source: WayTooHigh.com]
Just a few years ago, a 50 inch high-definition plasma TV cost more than $12,000. Today's versions are much better, yet costs under $2,000. This universal technology model should parallel merchant interchange fees too.
Seemingly, it works everywhere, but where the banks control an (alledged) illegal price-fixing cartel.
Remember, it was technology which brought down the actual cost for electronic payments to a fraction of the rates charged when manual charge card imprinters with multi-layer carbon copies were required.
See "Moore's Law" posting.
[source: WayTooHigh.com]
"Bracing for Change to Banks' House of Cards" (The Green Sheet)
A convergence of events, in the United States and abroad, is threatening the bankcard industry's interchange cash cow. Any doubts I had about this were eradicated during NACHA - The Electronic Payments Association's Payments 2006 conference. This year, the event featured a string of sessions on cards, and folks attending had interchange on their minds.
Here's how Duncan MacDonald, former Citibank General Counsel turned consultant, described the current situation: "Clearly, the card industry is in deep, deep trouble. It's under siege here and around the world."
MacDonald's comments came a week after the Reserve Bank of Australia announced reforms to debit card rules that bear a strong resemblance to rules it imposed on credit card schemes in 2003.
Those rules forced Australian banks to slash interchange on Visa International and MasterCard International credit card transactions and eliminated the Associations' surcharging prohibitions.
The Reserve Bank's latest reforms, to take hold in November, slash by two-thirds the current gap between Visa's higher POS debit interchange rate and the rates assessed by Australia's homegrown EFTPOS system.
Additionally, the Reserve Bank has ordered Visa to eliminate rules that force retailers accepting Visa credit cards for payment to also accept Visa debit cards. Plus, it capped the fees charged for connecting to the Australian EFTPOS system.
The Reserve Bank decided to force down debit interchange rates because of its belief that the current interchange structure creates "a strong incentive" for financial institutions to promote Visa's POS debit cards over the lower cost Aussie EFTPOS system.
"The reforms ... will narrow the current 60-cents difference in interchange fees to around 20 cents," the Reserve Bank stated. "By significantly narrowing the difference in these fees, these reforms will promote competition between the schemes based on the benefits that they offer to cardholders and merchants, rather than on fees that are not subject to normal competitive pressures."
Interchange works differently in Australia than it does in the United States. When POS payments clear through the Aussie EFTPOS system the bank that issued the card pays about A$0.20 in interchange to the merchant's bank.
In contrast, if a Visa debit card is used for a POS debit payment and cleared through the Visa network, the merchant acquiring bank pays the card-issuing bank an average A$0.40 in interchange.
Under the new pricing scheme, the fees paid by issuers for each transaction cleared through the Australian EFTPOS will drop to something in the range of A$0.04 to A$0.05. Interchange paid to Visa debit issuers in Australia has been pegged at about A$0.15 per transaction; down from the current A$0.40.
Will the United States follow Australia?
The Reserve Bank is Australia's central bank. But unlike the U.S. Federal Reserve Bank, the Reserve Bank has direct regulatory authority over payment card schemes, and that authority extends to pricing.
In the United States, individual card brands, such as Visa and MasterCard, set interchange fees. The Fed's job with respect to payment cards is to develop and help ensure compliance with consumer protection laws, such as the Electronic Funds Transfer (EFT) Act, nothing more.
In 2003, the Reserve Bank slashed interchange on Visa and MasterCard credit transactions and threw out the Associations' no-surcharge rules, an action that the bank reported shaved A$580 million off retailers' combined interchange tab. Ever since, the specter of similar action has hung over the U.S. bankcard industry like an ominous cloud.
In the past, the Federal Reserve has declined to regulate card interchange, saying it doesn't have the authority. But that was when Alan Greenspan was Fed Chairman. Ben Bernanke, the Fed's new Chairman, hasn't yet weighed in on the matter, and some experts believe it could be time for a policy change.
Plus, it's an election year. Congressional incumbents are on the lookout for legislative causes that play well with consumers, and this could be an issue that attracts voters. The connection between electioneering and legislating cannot be underestimated.
Most major banking legislation enacted over the last 50 years was passed during election years. (Two examples: the EFT Act and the Expedited Funds Availability Act, which set limits on check holds.)
Mallory Duncan, General Counsel at the National Retail Federation, believes a case can be made for federal regulation of interchange. He pointed to the Federal Reserve Act, early 20th century legislation that created the Fed as a means of stabilizing the economy.
Prior to this law, banks were allowed to deduct fees from the face of checks to cover risks and other costs. One of the Fed's first jobs was to eliminate this process of paying on checks. Duncan believes this same argument (of treating card payments on a par with one another) can be applied to today's market.
And let's not forget the pending lawsuits against Visa and MasterCard that challenge interchange. Most of the lawsuits have been combined into one class action suit now pending before a federal court in New York.
MacDonald predicted the Fed will be pulled into the fray. "I believe they have the authority," he said. "I think this case is such a monstrosity that [the presiding judge] would be happy to have regulators step in."
Then, referring to the Fed's 2005 decision not to address the issue, MacDonald contended, "Alan Greenspan was wrong. If this thing blows up they [the Fed] will have to fix it."
J.D. Denny Carreker, a long-time consultant to banks and Chairman and CEO of Carreker Corp., a software and consulting firm, urged bankers attending NACHA's conference not to let the Fed become involved in such matters. "In my view, the Federal Reserve does not have the knowledge you and your customers have," he said.
The big question now is, will Visa's and MasterCard's recent actions to restructure their boards be sufficient to keep Congress and regulators at bay?
[Source, The Green Sheets, written by Patti Murphy, Senior Editor of The Green Sheet and President of The Takoma Group].
Here's how Duncan MacDonald, former Citibank General Counsel turned consultant, described the current situation: "Clearly, the card industry is in deep, deep trouble. It's under siege here and around the world."
MacDonald's comments came a week after the Reserve Bank of Australia announced reforms to debit card rules that bear a strong resemblance to rules it imposed on credit card schemes in 2003.
Those rules forced Australian banks to slash interchange on Visa International and MasterCard International credit card transactions and eliminated the Associations' surcharging prohibitions.
The Reserve Bank's latest reforms, to take hold in November, slash by two-thirds the current gap between Visa's higher POS debit interchange rate and the rates assessed by Australia's homegrown EFTPOS system.
Additionally, the Reserve Bank has ordered Visa to eliminate rules that force retailers accepting Visa credit cards for payment to also accept Visa debit cards. Plus, it capped the fees charged for connecting to the Australian EFTPOS system.
The Reserve Bank decided to force down debit interchange rates because of its belief that the current interchange structure creates "a strong incentive" for financial institutions to promote Visa's POS debit cards over the lower cost Aussie EFTPOS system.
"The reforms ... will narrow the current 60-cents difference in interchange fees to around 20 cents," the Reserve Bank stated. "By significantly narrowing the difference in these fees, these reforms will promote competition between the schemes based on the benefits that they offer to cardholders and merchants, rather than on fees that are not subject to normal competitive pressures."
Interchange works differently in Australia than it does in the United States. When POS payments clear through the Aussie EFTPOS system the bank that issued the card pays about A$0.20 in interchange to the merchant's bank.
In contrast, if a Visa debit card is used for a POS debit payment and cleared through the Visa network, the merchant acquiring bank pays the card-issuing bank an average A$0.40 in interchange.
Under the new pricing scheme, the fees paid by issuers for each transaction cleared through the Australian EFTPOS will drop to something in the range of A$0.04 to A$0.05. Interchange paid to Visa debit issuers in Australia has been pegged at about A$0.15 per transaction; down from the current A$0.40.
Will the United States follow Australia?
The Reserve Bank is Australia's central bank. But unlike the U.S. Federal Reserve Bank, the Reserve Bank has direct regulatory authority over payment card schemes, and that authority extends to pricing.
In the United States, individual card brands, such as Visa and MasterCard, set interchange fees. The Fed's job with respect to payment cards is to develop and help ensure compliance with consumer protection laws, such as the Electronic Funds Transfer (EFT) Act, nothing more.
In 2003, the Reserve Bank slashed interchange on Visa and MasterCard credit transactions and threw out the Associations' no-surcharge rules, an action that the bank reported shaved A$580 million off retailers' combined interchange tab. Ever since, the specter of similar action has hung over the U.S. bankcard industry like an ominous cloud.
In the past, the Federal Reserve has declined to regulate card interchange, saying it doesn't have the authority. But that was when Alan Greenspan was Fed Chairman. Ben Bernanke, the Fed's new Chairman, hasn't yet weighed in on the matter, and some experts believe it could be time for a policy change.
Plus, it's an election year. Congressional incumbents are on the lookout for legislative causes that play well with consumers, and this could be an issue that attracts voters. The connection between electioneering and legislating cannot be underestimated.
Most major banking legislation enacted over the last 50 years was passed during election years. (Two examples: the EFT Act and the Expedited Funds Availability Act, which set limits on check holds.)
Mallory Duncan, General Counsel at the National Retail Federation, believes a case can be made for federal regulation of interchange. He pointed to the Federal Reserve Act, early 20th century legislation that created the Fed as a means of stabilizing the economy.
Prior to this law, banks were allowed to deduct fees from the face of checks to cover risks and other costs. One of the Fed's first jobs was to eliminate this process of paying on checks. Duncan believes this same argument (of treating card payments on a par with one another) can be applied to today's market.
And let's not forget the pending lawsuits against Visa and MasterCard that challenge interchange. Most of the lawsuits have been combined into one class action suit now pending before a federal court in New York.
MacDonald predicted the Fed will be pulled into the fray. "I believe they have the authority," he said. "I think this case is such a monstrosity that [the presiding judge] would be happy to have regulators step in."
Then, referring to the Fed's 2005 decision not to address the issue, MacDonald contended, "Alan Greenspan was wrong. If this thing blows up they [the Fed] will have to fix it."
J.D. Denny Carreker, a long-time consultant to banks and Chairman and CEO of Carreker Corp., a software and consulting firm, urged bankers attending NACHA's conference not to let the Fed become involved in such matters. "In my view, the Federal Reserve does not have the knowledge you and your customers have," he said.
The big question now is, will Visa's and MasterCard's recent actions to restructure their boards be sufficient to keep Congress and regulators at bay?
[Source, The Green Sheets, written by Patti Murphy, Senior Editor of The Green Sheet and President of The Takoma Group].
Wednesday, June 14, 2006
Tuesday, June 13, 2006
Saturday, June 10, 2006
"Gathering Highlights Power of the Blog" (NY Times)
Background from the YearlyKos Convention. Las Vegas is host to a three-day blog conference where a number of events, speakers, panels and networking sessions are being held. The Keynote Speaker is Senate Democratic Minority Leader Harry Reid. Other prominent elected officials, bloggers, thinkers, writers are also attending, speaking, and available for discussion.
The panels feature bloggers, politicians and leading experts. Many people look to the blogosphere to learn about important events and issues, and YearlyKos will amplify that learning process with these panel discussions and other activities
(Click here to read the New York Times June 11th feature on this blog convention)
[source: YearlyKos Convention]
The panels feature bloggers, politicians and leading experts. Many people look to the blogosphere to learn about important events and issues, and YearlyKos will amplify that learning process with these panel discussions and other activities
(Click here to read the New York Times June 11th feature on this blog convention)
[source: YearlyKos Convention]
Friday, June 09, 2006
Tuesday, June 06, 2006
Letter to Judge John Gleeson, Re Challenge to MasterCard's Stock Reclassification (WayTooHigh.com)
BankNet 360's June 6th article, "Antitrust Suit Seeks to Unwind MasterCard IPO," reports on the MasterCard IPO and interchange litigation. As lead plaintiffs in the antitrust litigation against Visa, MasterCard and Member Banks, we believe that the new claims are well founded.
[Source: WayTooHigh.com]
-------------------------------------------------------------------------------------------------
Below is a copy of the May 22nd letter to Judge Gleeson from our attorney, K. Craig Wildfang, Co-Lead Counsel for Class Plaintiffs
May 22, 2006
The Honorable John Gleeson
United States Courthouse
Brooklyn, New York 11201
Re: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation
Dear Judge Gleeson:
This letter is submitted pursuant to section 1II.B. of the Court’s rules of practice. Class Plaintiffs seek leave of Court pursuant to Rule 15(d), Fed. R. Civ. P. to file a Supplemental Complaint supplementing the claims asserted by the Class in their First Consolidated Amended Complaint. For the convenience of the Court and the parties, we attach a copy of the proposed supplemental Complaint. The basis for the request is the announcement by Defendant Mastercard, Incorporated of its intention to proceed on May 24, 2006, to sell shares of stock to the public in an initial public offering (“IPO”). Plaintiffs seek to supplement their First Consolidated Amended Complaint to challenge Agreements (as defined in the proposed Supplemental Complaint) between and among Defendant Mastercard, Incorporated and its Member Banks whose effect may be substantially to lessen competition and purportedly remove Mastercard and its Member Banks from the purview of Section 1 of the Sherman Act. The proposed supplemental claims do not change, in any way, the Class Plaintiffs claims asserted in the First Consolidated Amended Class Action Complaint dated April 24,2006.
Mastercard and its Member Banks purport to accomplish their goal of immunizing themselves from antitrust liability by the public issuance of stock for a partial interest in a New Mastercard. Specifically, the Agreements involve the purchase by Mastercard of certain of the Member Banks’ ownership and control rights in Mastercard through the redemption and reclassification of approximately 100 million shares of Mastercard common stock currently owned by the Member Banks into new Class B non-voting shares, and issuing new Class M shares to the Member Banks. In exchange for acquiring part of their interests, Mastercard will pay the Member Banks approximately $2.2 Billion. Mastercard intends to raise the money by selling to the public through an initial public offering ("IPO") of approximately 61,520,912 shares of Class A common stock, in order to raise approximately $2.83 Billion.
Mastercard has stated publicly that its purpose in effecting the Agreements is to attempt to insulate itself from antitrust liability under Section One of the Sherman Act. Contrary to Mastercard’s public statements, Class Plaintiffs do not believe that Mastercard’s Agreements and PO removes Mastercard or its Member Banks from the purview of Section One of the Sherman Act. However, if the transaction is not a sham, then it violates Section 7 of the Clayton Act and Section One of the Sherman Act. By the proposed Supplemental Complaint Class Plaintiffs seek leave to Supplement their First Consolidated Amended Complaint by adding three claims for relief. First, Class Plaintiffs seek to challenge the Agreements as a violation of Section 7 of the Clayton Act, 15 U.S.C. 9 18 in that the Agreements, including the PO, threaten substantially to lessen competition in the Relevant Market. Second, Class Plaintiffs seek to challenge the Agreements as a violation of Section One of the Sherman Act, in that the Agreements unreasonably restrain competition in the Relevant Market. Third, Class Plaintiffs seek to challenge the Agreements as a fraudulent conveyance, as the Agreements contemplate the elimination-for no consideration--of the ability of Mastercard to assess its Member Banks to satisfy the debts and liabilities of Mastercard. These claims are set forth and amplified in the proposed Amendment.
Rule 15 provides, in relevant part, that a court may, upon motion of a party and “upon such terms as are just, permit the party to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented.” Fed. R. Civ. P. 15(d).
Courts in this district and this circuit have liberally construed Rule 15 to permit amendments. Monahan v. New York City Dep’t of Corrections, 214 F.3d 275,283 (2d Cir. 2000) (“[Albsent evidence of undue delay, bad faith or dilatory motive on the part of the movant, undue prejudice to the opposing party, or futility, Rule 15’s mandate [that leave to amend be freely given] must be obeyed.”); Katzman v. Sessions, 156 F.R.D. 35, 39 (E.D.N.Y. 1994) (stating that Rule 15(d)’s “liberal policy favor[s] a merit-based resolution of the entire controversy between the parties.”).
Class Plaintiffs believe that this is a motion for which a pre-hearing conference may not be useful, as contemplated by Section II1.B. of the Court’s rules of practice. Therefore, we suggest that, absent the stipulation of defendants to permit the supplement (which we are seeking) the Court consider dispensing with the pre-hearing conference and set a schedule for briefing and arguing the motion. Alternatively, a status conference is set before Magistrate Judge
Orenstein for June 20,2006, and perhaps the parties could use that occasion to discuss a briefing schedule.
If the Court has any questions regarding this matter, we will make ourselves available at the Court’s convenience.
Sincerely,
ROBINS, KAPLAN, MILLER & CIRESI L.L.P
K. Craig Wildfang
Co-Lead Counsel for Class Plaintiffs
cc: Magistrate Judge James Orenstein (w/encl.)
All Counsel of Record (w/encl.)
[Source: WayTooHigh.com]
-------------------------------------------------------------------------------------------------
Below is a copy of the May 22nd letter to Judge Gleeson from our attorney, K. Craig Wildfang, Co-Lead Counsel for Class Plaintiffs
May 22, 2006
The Honorable John Gleeson
United States Courthouse
Brooklyn, New York 11201
Re: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation
Dear Judge Gleeson:
This letter is submitted pursuant to section 1II.B. of the Court’s rules of practice. Class Plaintiffs seek leave of Court pursuant to Rule 15(d), Fed. R. Civ. P. to file a Supplemental Complaint supplementing the claims asserted by the Class in their First Consolidated Amended Complaint. For the convenience of the Court and the parties, we attach a copy of the proposed supplemental Complaint. The basis for the request is the announcement by Defendant Mastercard, Incorporated of its intention to proceed on May 24, 2006, to sell shares of stock to the public in an initial public offering (“IPO”). Plaintiffs seek to supplement their First Consolidated Amended Complaint to challenge Agreements (as defined in the proposed Supplemental Complaint) between and among Defendant Mastercard, Incorporated and its Member Banks whose effect may be substantially to lessen competition and purportedly remove Mastercard and its Member Banks from the purview of Section 1 of the Sherman Act. The proposed supplemental claims do not change, in any way, the Class Plaintiffs claims asserted in the First Consolidated Amended Class Action Complaint dated April 24,2006.
Mastercard and its Member Banks purport to accomplish their goal of immunizing themselves from antitrust liability by the public issuance of stock for a partial interest in a New Mastercard. Specifically, the Agreements involve the purchase by Mastercard of certain of the Member Banks’ ownership and control rights in Mastercard through the redemption and reclassification of approximately 100 million shares of Mastercard common stock currently owned by the Member Banks into new Class B non-voting shares, and issuing new Class M shares to the Member Banks. In exchange for acquiring part of their interests, Mastercard will pay the Member Banks approximately $2.2 Billion. Mastercard intends to raise the money by selling to the public through an initial public offering ("IPO") of approximately 61,520,912 shares of Class A common stock, in order to raise approximately $2.83 Billion.
Mastercard has stated publicly that its purpose in effecting the Agreements is to attempt to insulate itself from antitrust liability under Section One of the Sherman Act. Contrary to Mastercard’s public statements, Class Plaintiffs do not believe that Mastercard’s Agreements and PO removes Mastercard or its Member Banks from the purview of Section One of the Sherman Act. However, if the transaction is not a sham, then it violates Section 7 of the Clayton Act and Section One of the Sherman Act. By the proposed Supplemental Complaint Class Plaintiffs seek leave to Supplement their First Consolidated Amended Complaint by adding three claims for relief. First, Class Plaintiffs seek to challenge the Agreements as a violation of Section 7 of the Clayton Act, 15 U.S.C. 9 18 in that the Agreements, including the PO, threaten substantially to lessen competition in the Relevant Market. Second, Class Plaintiffs seek to challenge the Agreements as a violation of Section One of the Sherman Act, in that the Agreements unreasonably restrain competition in the Relevant Market. Third, Class Plaintiffs seek to challenge the Agreements as a fraudulent conveyance, as the Agreements contemplate the elimination-for no consideration--of the ability of Mastercard to assess its Member Banks to satisfy the debts and liabilities of Mastercard. These claims are set forth and amplified in the proposed Amendment.
Rule 15 provides, in relevant part, that a court may, upon motion of a party and “upon such terms as are just, permit the party to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented.” Fed. R. Civ. P. 15(d).
Courts in this district and this circuit have liberally construed Rule 15 to permit amendments. Monahan v. New York City Dep’t of Corrections, 214 F.3d 275,283 (2d Cir. 2000) (“[Albsent evidence of undue delay, bad faith or dilatory motive on the part of the movant, undue prejudice to the opposing party, or futility, Rule 15’s mandate [that leave to amend be freely given] must be obeyed.”); Katzman v. Sessions, 156 F.R.D. 35, 39 (E.D.N.Y. 1994) (stating that Rule 15(d)’s “liberal policy favor[s] a merit-based resolution of the entire controversy between the parties.”).
Class Plaintiffs believe that this is a motion for which a pre-hearing conference may not be useful, as contemplated by Section II1.B. of the Court’s rules of practice. Therefore, we suggest that, absent the stipulation of defendants to permit the supplement (which we are seeking) the Court consider dispensing with the pre-hearing conference and set a schedule for briefing and arguing the motion. Alternatively, a status conference is set before Magistrate Judge
Orenstein for June 20,2006, and perhaps the parties could use that occasion to discuss a briefing schedule.
If the Court has any questions regarding this matter, we will make ourselves available at the Court’s convenience.
Sincerely,
ROBINS, KAPLAN, MILLER & CIRESI L.L.P
K. Craig Wildfang
Co-Lead Counsel for Class Plaintiffs
cc: Magistrate Judge James Orenstein (w/encl.)
All Counsel of Record (w/encl.)
Monday, June 05, 2006
Is Janet Mullins Grissom the Next "Susan Molinari"? (WayTooHigh.com)
When last we profiled Washington lobbyist, Susan Molinari, she was national chairperson of Americans for Consumer Education & Competition® (ACEC). Then, just months ago, her advocacy group issued a release insisting that "Discover® Card Abandons Cardholders".
This official-sounding cheerleading group which professes to celebrate competition was actually attacking another credit card issuer. The same banks which own Visa® and MasterCard® collectively share 85% of the entire payment card market, yet they were insolent enough to covertly attack the competition ... Discover® Card.
Those banks with shared ties to both card associations also have connections to ACEC. The nonprofit group even focused attention on WayTooHigh.com - The Credit Card Interchange Report last fall. But, who is ACEC? In their own words: [ACEC] "enjoys the financial support of Visa USA."
While the February ACEC news release failed to disclose its Visa USA support, previous postings have as does the "About ACEC" page.
While we have noticed a recent disconnect from within ACEC; there has been declining advocacy activity since the February release, now there appears to be a new player in town.
Welcome Janet Mullins Grissom.
On June 6, Hill Newspaper, the U.S. Congress chronicler profiled the newest lobbyist weapon against people who rely on credit and debit cards. Because the partisan Mullins Grissom had ties with the former Bush administration and was former Ford Motor Co Washington Lobbyist, we wonder how she plans to address the growing issue of windfall credit and debit card profits at service stations? (Motorists are being forced to pay record fuel and merchant interchange fees to fill up). Will her Washington connections in the auto and banking industry try to diminish the outrage over assertions of banks profiteering at the gas pumps?
As reported in The Hill Newspaper, it might have been easy using volunteers to sabotage a political rally by packing the halls with shills waving "Switch to Mitch" placards [future U.S. Rep. Senator McConnell]. But, this time the challenge faces even more creativity. Today, retailers and consumers are poised to break and crumple Grissom's theatrics and battle the credit card companies $30-billion annual tax on consumers and retailers.
[source: WayTooHigh.com]
This official-sounding cheerleading group which professes to celebrate competition was actually attacking another credit card issuer. The same banks which own Visa® and MasterCard® collectively share 85% of the entire payment card market, yet they were insolent enough to covertly attack the competition ... Discover® Card.
Those banks with shared ties to both card associations also have connections to ACEC. The nonprofit group even focused attention on WayTooHigh.com - The Credit Card Interchange Report last fall. But, who is ACEC? In their own words: [ACEC] "enjoys the financial support of Visa USA."
While the February ACEC news release failed to disclose its Visa USA support, previous postings have as does the "About ACEC" page.
While we have noticed a recent disconnect from within ACEC; there has been declining advocacy activity since the February release, now there appears to be a new player in town.
Welcome Janet Mullins Grissom.
On June 6, Hill Newspaper, the U.S. Congress chronicler profiled the newest lobbyist weapon against people who rely on credit and debit cards. Because the partisan Mullins Grissom had ties with the former Bush administration and was former Ford Motor Co Washington Lobbyist, we wonder how she plans to address the growing issue of windfall credit and debit card profits at service stations? (Motorists are being forced to pay record fuel and merchant interchange fees to fill up). Will her Washington connections in the auto and banking industry try to diminish the outrage over assertions of banks profiteering at the gas pumps?
As reported in The Hill Newspaper, it might have been easy using volunteers to sabotage a political rally by packing the halls with shills waving "Switch to Mitch" placards [future U.S. Rep. Senator McConnell]. But, this time the challenge faces even more creativity. Today, retailers and consumers are poised to break and crumple Grissom's theatrics and battle the credit card companies $30-billion annual tax on consumers and retailers.
[source: WayTooHigh.com]
Sunday, June 04, 2006
Understanding Merchant "Interchange" Fees Is Onerous Challenge (WayTooHigh.com)
Few retailers and shoppers understand or are even aware they pay upwards of one-hundred separate fees when using credit and debit payment cards. And, it seems that is just the way the credit card companies want it to be.
Like all companies, our retail and national online boutique photo business understands and keeps track of every expense. For instance, we know the cost for paper and other supplies from the Eastman Kodak Company® and are able to choose from various vendors. But, like millions of other merchants, we too are forced to accept Visa® and MasterCard®.
Ultimately, it is the consumer who pays the $30-billion annual tab for these merchant interchange fees.
While the banks' merchant services units tell retailers they are forced to raise rates, few understand that thousands of banks own all of Visa® and a much of MasterCard®. Their member banks are the acquirers and issuers. They set the rates and they make it confusing. While Visa® shadows MasterCard® in size, the two card associations control nearly 85% of the world's payment services business.
Even Fortune Magazine® could not figure out how the merchant interchange fees work and issued a retraction within its May 31 issue. The business weekly had thought the $30-billion annual fee were revenues just to Visa® and MasterCard®. Not exactly. The retraction explained that MasterCard®, Visa USA® and Visa International® earn several billion dollars from these fees, but left it open for who earns the rest.
As independent issuers, American Express® and Discover Card® earn a portion, but a wide path of the remaining revenues makes a few hand changes, but then reverts back to the banks and payment merchant service companies. For instance, as one of the largest payment processors, Paymentech is owned by Chase. Collectively, that $30-billion annual fee is therefore divided by the same financial institutions; often they wear different hats, but the treasures flow to the same vaults.
[source: WayTooHigh.com]
Like all companies, our retail and national online boutique photo business understands and keeps track of every expense. For instance, we know the cost for paper and other supplies from the Eastman Kodak Company® and are able to choose from various vendors. But, like millions of other merchants, we too are forced to accept Visa® and MasterCard®.
Ultimately, it is the consumer who pays the $30-billion annual tab for these merchant interchange fees.
While the banks' merchant services units tell retailers they are forced to raise rates, few understand that thousands of banks own all of Visa® and a much of MasterCard®. Their member banks are the acquirers and issuers. They set the rates and they make it confusing. While Visa® shadows MasterCard® in size, the two card associations control nearly 85% of the world's payment services business.
Even Fortune Magazine® could not figure out how the merchant interchange fees work and issued a retraction within its May 31 issue. The business weekly had thought the $30-billion annual fee were revenues just to Visa® and MasterCard®. Not exactly. The retraction explained that MasterCard®, Visa USA® and Visa International® earn several billion dollars from these fees, but left it open for who earns the rest.
As independent issuers, American Express® and Discover Card® earn a portion, but a wide path of the remaining revenues makes a few hand changes, but then reverts back to the banks and payment merchant service companies. For instance, as one of the largest payment processors, Paymentech is owned by Chase. Collectively, that $30-billion annual fee is therefore divided by the same financial institutions; often they wear different hats, but the treasures flow to the same vaults.
[source: WayTooHigh.com]
Friday, June 02, 2006
Consolidated Amendment to Class Action Complaint (WayTooHigh.com)
[Repost from Apr 25]
Millions of retailers have been damaged by Visa and MasterCard and the profound impact from billions of dollars each year being charged as a hidden tax on consumers and retailers. Over the years, many have been so angered by the banks anticompetitive, price fixing by agreement that they wanted to respond and act. Today [Apr 25], nearly twenty merchants and trade associations from across the nation have taken on the role to battle Visa and MasterCard.
Overview: America’s largest banks are accused of unlawfully fixing the merchant credit card fees from transactions over the Visa and Mastercard networks. They also allegedly enact restrictions that prevent merchants from protecting themselves against those fees. In this complaint, two nationwide classes of merchants seek monetary damages to compensate them for the overcharges caused by this llegal conspiracy and equitable relief to protect themselves against continuing and future harm.
April 25, 2006 - First Consolidated Amendment - Class Action Complaint. "PAYMENT CARD INTERCHANGE FEE AND MERCHANT-DISCOUNT ANTITRUST LITIGATION"
Click here to view the Consolidated Amendment to the Class Action Complaint
Among the charges are that Visa and MasterCard’s Board of Directors are alleged to have fixed, raised and conspired to set Interchange fees in violation of Section 1 of the Sherman Act. It is unlawful to fix prices. It is also illegal to restrain trade. Visa and MasterCard are being accused of protecting their monopoly by ensuring that no competitor gains significant market power. The amended class action complaint was filed today in the U.S. District Court Eastern District of New York.
Key points of distinction, as identified within the amended complaint. Did you know that:
1) Visa and MasterCard do not use the Interchange Fees to fund their operations.
2) Visa and MasterCard’s Member Banks charge an Interchange Fee to merchants, even when the issuing and acquiring banks are the same entity.
3) Interchange Fees helped pay for the costs of initial card issuance, marketing, transferring transactional paper between the acquiring and issuing banks. This was necessary to induce banks to issue and support the card networks. The networks no longer transfer large numbers of paper receipts (remember the manual credit card imprinters, and multi-layered carbon-copy forms?). Thus, Interchange fees are no longer cost-based.
4) Today, merchants have no choice but to accept Visa and MasterCard’s dominant credit cards and their forced, supracompetitive level of Interchange fees. Nearly every merchant that accepts Visa payment cards also accepts MasterCard as a form of payment; there is little distinction between the two. A Visa transaction is indistinguishable from a MasterCard transaction. Both share identical relationships among the same Member Banks.
5) Today’s credit card network could function effectively without uniform, collectively fixed Interchange fees.
6) Every major U.S. bank is a member of both Visa and MasterCard’s associations and the memberships are virtually identical.
7) The collective setting of uniform Interchange fees restrains competition and elevates the merchant discount fees to supracompetitive levels. Visa and MasterCard and the defendant banks are direct horizontal competitors of each other, engage in unlawful contracts, conspiracies and practice unreasonable restraint of interstate trade or commerce in violation of the Sherman Antitrust Act. And, all the Member Banks of Visa and MasterCard have actual knowledge of, and have knowingly participated in the conspiracy.
8) Visa and MasterCard use their market power by "price discrimination" in the level of Interchange fees charged to various merchants. They also force their premium credit cards (signature cards) upon merchants to accept and charge higher Interchange fees than non-premium cards. Merchants are thus subsidizing cardholders frequent flyer and other reward points.
9) There are significant barriers to entry for other card brands to enter the market. Because of these barriers, the only successful market entrant since the 1960's was Discover and today it would cost over $1 billion to enter the market, but still face problems with developing a separate merchant acceptance network.
[source: WayTooHigh.com, points of reference extracted from the First Consolidated Amended Class Action Complaint]
Millions of retailers have been damaged by Visa and MasterCard and the profound impact from billions of dollars each year being charged as a hidden tax on consumers and retailers. Over the years, many have been so angered by the banks anticompetitive, price fixing by agreement that they wanted to respond and act. Today [Apr 25], nearly twenty merchants and trade associations from across the nation have taken on the role to battle Visa and MasterCard.
Overview: America’s largest banks are accused of unlawfully fixing the merchant credit card fees from transactions over the Visa and Mastercard networks. They also allegedly enact restrictions that prevent merchants from protecting themselves against those fees. In this complaint, two nationwide classes of merchants seek monetary damages to compensate them for the overcharges caused by this llegal conspiracy and equitable relief to protect themselves against continuing and future harm.
April 25, 2006 - First Consolidated Amendment - Class Action Complaint. "PAYMENT CARD INTERCHANGE FEE AND MERCHANT-DISCOUNT ANTITRUST LITIGATION"
Click here to view the Consolidated Amendment to the Class Action Complaint
Among the charges are that Visa and MasterCard’s Board of Directors are alleged to have fixed, raised and conspired to set Interchange fees in violation of Section 1 of the Sherman Act. It is unlawful to fix prices. It is also illegal to restrain trade. Visa and MasterCard are being accused of protecting their monopoly by ensuring that no competitor gains significant market power. The amended class action complaint was filed today in the U.S. District Court Eastern District of New York.
Key points of distinction, as identified within the amended complaint. Did you know that:
1) Visa and MasterCard do not use the Interchange Fees to fund their operations.
2) Visa and MasterCard’s Member Banks charge an Interchange Fee to merchants, even when the issuing and acquiring banks are the same entity.
3) Interchange Fees helped pay for the costs of initial card issuance, marketing, transferring transactional paper between the acquiring and issuing banks. This was necessary to induce banks to issue and support the card networks. The networks no longer transfer large numbers of paper receipts (remember the manual credit card imprinters, and multi-layered carbon-copy forms?). Thus, Interchange fees are no longer cost-based.
4) Today, merchants have no choice but to accept Visa and MasterCard’s dominant credit cards and their forced, supracompetitive level of Interchange fees. Nearly every merchant that accepts Visa payment cards also accepts MasterCard as a form of payment; there is little distinction between the two. A Visa transaction is indistinguishable from a MasterCard transaction. Both share identical relationships among the same Member Banks.
5) Today’s credit card network could function effectively without uniform, collectively fixed Interchange fees.
6) Every major U.S. bank is a member of both Visa and MasterCard’s associations and the memberships are virtually identical.
7) The collective setting of uniform Interchange fees restrains competition and elevates the merchant discount fees to supracompetitive levels. Visa and MasterCard and the defendant banks are direct horizontal competitors of each other, engage in unlawful contracts, conspiracies and practice unreasonable restraint of interstate trade or commerce in violation of the Sherman Antitrust Act. And, all the Member Banks of Visa and MasterCard have actual knowledge of, and have knowingly participated in the conspiracy.
8) Visa and MasterCard use their market power by "price discrimination" in the level of Interchange fees charged to various merchants. They also force their premium credit cards (signature cards) upon merchants to accept and charge higher Interchange fees than non-premium cards. Merchants are thus subsidizing cardholders frequent flyer and other reward points.
9) There are significant barriers to entry for other card brands to enter the market. Because of these barriers, the only successful market entrant since the 1960's was Discover and today it would cost over $1 billion to enter the market, but still face problems with developing a separate merchant acceptance network.
[source: WayTooHigh.com, points of reference extracted from the First Consolidated Amended Class Action Complaint]
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