It's a Card Game (WayTooHigh.com)

In Australia, as the Reserve Bank moves to further reduce interchange fees, the banks are shifting their card brands towards Amex, because according to The Australian, those cards are not regulated. We are seeing a growing transformation in the U.S., where banks are issuing Amex-branded cards to replace those of the two leading card associations. This means that consumers and merchants are facing extraordinarily higher fees for processing electronic payments.

Prior Related Postings

Merchant Interchange Fees May Skyrocket (WayTooHigh.com)

American Express Tarnished, the Brand Leader's Cache Faces Saturation (WayTooHigh.com)

MBNA-AmEx Relationship Threatened (The News Journal / Bloomberg News)

[Commentary: WayTooHigh.com]

"RBA Threatens Card, ATM Fee Cuts" (via The Austrialian)

"Credit Card Interchange Fees Spark Disputes Among Small Business Merchants" (Pittsburgh Tribune-Review)

"Visa's Changes Muddy Interchange Waters (Green Sheet)

"Cards Bring Few Rewards" (St. Petersburg Times)

"Merchants, Pay Attention to Rising Credit-Card Fees" (Indystar.com)

Shouldn't Technology Lower Interchange Fees? (commentary: WayTooHigh.com)

ScanMyPhotos.com, a division of 30 Minute Photos Etc. is profiled in two more leading national magazines [Reader's Digest, June issue. page 197; Women's Health Magazine, June issue. page 56].

What does this have to do with the multi billion dollar antitrust merchant interchange litigation?

Quite a bit.

As technology advances, the costs are supposed to decline; this is further explained by Moore's Law. For us, we invented an entirely new business model that is being followed throughout the photo imaging industry. Rather than charging $5.00 to scan a single picture, we charge just 5-cents for scanning 1,000 photos, or $100 to scan upwards of 1,600 4x6" photos when you fill up our prepaid ScanMyPhotos.com box. But, when it comes to the credit card associations, they allegedly practice anti competitive price-fixing by agreement which is illegal, but helps artifically raise their fees, rather. Think of the old manual credit card imprinters and multi-carbon-copy forms which had to be manually processed, mailed out of state and cleared - that is what the cost-based interchange fees were designed for.

Related WayTooHigh.com Postings

Why Interchange Fees Concern Retailers and Consumers (commentary: WayTooHigh.com)

Growing List of Reasons to Lower and End Interchange Fees (WayTooHigh.com)

Shouldn't Smart Cards Remedy Soaring Interchange Fees? (WayTooHigh.com)

Background Reference to 30 Minute Photos Etc (from Rochester D&C)

[Source -commentary: WayTooHigh.com]

More Windfall Profitering at the Pumps (WayTooHigh.com)

With renewed attention and motorist outrage, Visa®, the bank-controlled credit card association, along with MasterCard® are reaping more windfall profiteering during our nation's energy crisis - Record pump prices translate into record merchant interchange fees. As gas prices double, so to are the credit card fees paid in interchange charges. Why? And, what happened to the $50 MasterCard-led interchange cap at the pumps that was heralded late last year? What about Visa and its plan for deflecting this growing crisis and attention to charges that it [member banks] too is reaping huge windfall profits as motorists are forced to pay upwards of $4.00 a gallon?

MasterCard's® Planned Interchange Fee Cap For Gas Retailers (WayTooHigh.com)

[Source: WayTooHigh.com]

So, What Is The Exact Interchange Fee Anyway? (commentary: WayTooHigh.com)

In days, as millions of consumers read about ScanMyPhotos.com - a division of 30 Minute Photos Etc., we face a dilemma. Profiles in the June editions of Reader's Digest and Women's Health Magazine explain the new business we invented for digitally protecting photo memories. What is unclear is one component: what are our electronic payment costs?

As entrepreneurs, we have a mandate to know what all expenses are and quickly choose which vendors to work with. One company, which we have been buying products from since 1990, seems to have become distant and their rates for packaging materials were way too high. So, we did a search and found another suppler with rates nearly half of the other company. After the order, we received two letters of appreciation; clearly, they wanted to earn our business.

As for the credit card companies, Visa® and MasterCard's® nearly 80% market domination is in a different league. Just as we can choose our partners and easily understand exactly what we are paying, as we prepare for this extensive media coverage on our company, we have all costs in check, except our interchange fees.

And, here is why: While the Visa and MasterCard links posted on their websites identify their merchant interchange fees, it is easy to understand why it is clouded, confusing and unfriendly. With the onslaught of new orders we are preparing for, it is anyone's guess what our payment interchanges fees will be.

[source: commentary - WayTooHigh.com]

"Visa, CEO Preparing for Initial Public Offering" (The Mercury News)

The below excerpt from an an edited transcript of an interview with Mercury News personal finance reporter Mark Schwanhausser and Joseph W. Saunders, who was just named chairman and chief executive of Visa Inc., was published on May 16, 2007. However, it very well could have mirrored the identical arguments made by the railroad industry in the late 1800s, when they too tried justifying why farmers needed them to bring their goods to market. Back then, there was no Antitrust Act, but it was the force which caused its creation - to stop collusion to illegally fix prices.

For Mr. Saunders to opine that "we're not as far apart [on the rebellion against interchange fees] as some people may think" is distance from our prospective.

As a merchant, ecommerce business owner and lead plaintiff who is on the front line - dealing with consumers every day - we know differently. The reality is that our customers, along with fellow business owners continue to applaud our efforts, even as more merchant interchange fees continue to increase. We are about as far apart as were the framers in the late-1800s who faced monopolistic controls by the railroad titans who forced unbridled rate increases while applying talking points parroted by Mr. Saunders.

[from The Mercury News, see link]

Q How do you plan to soothe merchants who are rebelling over interchange fees?

A Ironically, I think we work on that all the time. Even while this litigation is going on, we've made a number of arrangements with a number of merchants, and I would say we're not as far apart as some people may think. It's a situation where we need each other. We provide services for them, and they provide an outlet for us. We need to continually work to make sure that relationship improves over time. It's clearly something we need to work on.

Q Is the key relationships or pricing?

A It comes down to the point when merchants feel there is value for the service we provide. Now, remember that at this particular point in time Visa does not have direct relationships with the merchant. The relationship is through the banks and third parties. The rub is that the suit is about the interchange rates. But it does still come back to showing the merchant that there is value in what we provide. And there is a lot of value, by the way.

[source: WayTooHigh.com, via The Mercury News, May 16, 2007]

MasterCard Worldwide® Sweepstakes More Like "Cheap"-stakes (commentary WayTooHigh.com)

Just like the myriad of other promotional campaigns offered by the two leading card associations, here is one more example of how merchants and cardholders are misled and affected by interchange fees - without even noticing. According to a Businesswire MasterCard Worldwide® release today, the company, along with The Home Depot Announced a "$100,000 Backyard Retreat'' Sweepstakes. Use your MasterCard cards to "automatically enter[ed] for a chance to win a $100,000 Backyard Retreat."

The catch? Read the fine print: PIN-based transactions are not eligible.

What this means is that it forces cardholders to demand that retailers electronically process their payments at the oftentimes much higher credit card rate, rather than at the flat-fee PIN-based rates. What a deal: MasterCard provides one lucky recipient with $100,000, yet retailers are forced to pay out huge interchange fees to the card associations and member banks.

See BW release

[Commentary: WayTooHigh.com]

"MasterCard 1Q Profit Surges 70 Percent" (via AP)

"On Interchange, the NRF Turns to the States, Underscoring Sales Tax" (Digital Transactions)

"Hidden Interchange Fees Now Total More Than $36 Billion" (MPC)

"Credit Card Fees Surged 22 Percent" (via NACS)

According to a recent NACS news release, "Credit card fees surged 22 percent, rising $1.2 billion to reach $6.6 billion in 2006 and for the first time ever top overall industry profits. Credit card fees now are the industry's second largest expense, accounting for 8.3 percent of industry gross margin dollars, second only to total labor expenses (33.5 percent)."

[Source: via NACS]

"State Legislatures Join Congressional Efforts Looking Into $36 Billion Credit Card Interchange Issue" (MPC)

"Visa Hikes Overall Interchange 0.6%, Effective April 14" (Digital Transactions)

"Credit Cards Put on the Brakes at Gas Pumps" (Arkansas Democrat-Gazette)

"Bankers, Retailers Square off Over Credit Card Fees" (Nashville Business Journal)

Regional Shell-branded Sites to Temporarily Stop Accepting Certain Cards... (via Shell website)

"First Data Agrees to be Sold to KKR for $29 Bln " (via Reuters)

NEW YORK (Reuters) - Credit-card and payment processor First Data Corp. has agreed to be acquired by private equity firm Kohlberg Kravis Roberts & Co. for about $29 billion cash, but plans to actively seek other bids...

[Source: via Reuters]

"Card Issuers, Retailers at Odds" (via LA Times)

In the April 2nd front page (business) Los Angeles Times feature, a vice president at Visa USA® noted that her local deli does not accept Visa. The article also mentioned that "credit card executives say merchants can always choose to stop accepting their cards." This same argument could have transpired by the robber barons of more than a century ago - which led to inacting the Sherman Antitrust Act. Just as Visa and MasterCard® control an 80% market share of the electronic payment card market, those who controlled the railroads expressed the same callous remarks to farmers when they too explained that they don't have to use the rails to get their goods to market. The same card association executive should have wondered what would happen if her local deli was also operating an internet food delivery business too. Think Zaber's in New York City, they also operate a deli, but without credit cards they would have to close down their ecommerce business. For us, our ecommerce business is 100% reliant on credit and debit card transactions. We are forced to accept their fees and unbridled anticompetitive price-fixing by agreement.

[Source: WayTooHigh.com commentary in response to the April 2, 2006 LA Times article]

"Visa Charging Ahead with Signature Preferred Card" (San Francisco Business Times)

"Visa Hikes Merchant Fees on High-Limit Card" (via BankNet 360)

According to BankNet 360, "merchants will pay an average of 14% more per transaction when customers use their new Signature Preferred Visa card. Visa USA Inc. said next month it will start issuing the high-end plastic line to its 'bigger spenders,' those who charge more than $50,000 a year... The hike is likely to exacerbate tension between the card industry and retail merchants who say they already pay too much in interchange fees."

WayTooHigh.com Commentary: More fee increases? As lead plaintiff in what is one of nation's largest antitrust litigation's, we thought the card associations and its member banks would temper their allegedly brazen anticompetitive illegal price fixing, but apparently not. Rates keep rising, while other technologies keep lowering their fees.

Two recent national newspaper's (WSJ and USA Today) recently profiled our use of technology to increase efficiencies and lower prices. Even one of our vendors just switched from thick, carbon-copy service reports to smart, single page electronic forms which cut costs and enhanced efficiencies. Another example: a study of the cost of one TeraByte of storage; it cost a whopping $1 million in 1992. Within one year, the cost was cut in half to $550,000. By 1997, it was $50,000 and in 2,000 the cost was $8,500. This year, a consumer can easily buy one TeraByte of storage for $130. From $1 million to $130 in just over a decade. Now look at merchant fees; since 1999 the interchange fees for debit cards have risen about 300%.

[Source: via BankNet 360, subscription required]

Credit Card Industry Takes Its Licks" (ConsumerAffairs.com)

"Credit Card Industry Takes Its Licks" (ConsumerAffairs.com)

"Cashless Society by 2012, says Visa Chief" (The Independent)

"Card Firms Confess to Collusion" (The Korea Times

30 Minute Photos Etc. [ScanMyPhotos.com] USA Today profile (WayTooHigh.com)

"Merchants Protect Against Interchange Fees (RNCOS)

Interchange Fee Justification (WayTooHigh.com)

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

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

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

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

[Commentary: WayTooHigh.com]

"Will That be Credit or Debit?, Credit cards are earning you rewards, Sometimes at the Expense of Retailers" (Louisiana Business Report)

"MasterCard Alters Fee Structure" (WSJ)

Robin Sidel reports in the March 1, Wall Street Journal that "in a move that is prompting an outcry from retailers, MasterCard Inc. is overhauling its merchant-fee structure in an attempt to capitalize on the increasing number of credit cards that a loaded with rewards."

Click here for WSJ link (subscription required)

[Source, via WSJ]

More Rate Increases Planned by MasterCard Worldwide® (WayTooHigh.com®)

On April 1, 2007, in yet another brazen disregard for its two core customers - retailers and consumers, MasterCard Worldwide® is preparing to raise interchange fees again, according to a report in Digital Transactions. Yes, they will lower some, but they are raising others. This time, they have posted the adjustments in a 100-page script that is sure to further galvanize even more interest in what we assert is unbridled, anti competitive price-fixing at levels our nation has never seen before. Last time, the rate schedule was just 72-pages. As an entrepreneur, ecommerce and retail business owner, we have not a clue what the new rates are. It's a bundle of confusion. At least when the US Post Office announced planned rate increases yesterday there was justification due to fuel and related costs. But, as technology continues to cut and lower costs, why is it that the member banks and MasterCard are again antagonizing its customers, especially when they are facing what might be the most costly antitrust litigation in our nation's history.

The credit card networks no longer must transfer large numbers of paper receipts and these fees are no longer cost-based, so what exactly is the justification to reap more windfall revenues?

Rather than a 100-page confusing online rate structure, a more genuine action would be to post the exact interchange fee on every credit and debit card receipt.

Click here to view the MasterCard Worldwide U.S. and Interregional Interchange Rates effective April 1, 2007.

Click here for an informational news account reported by Digital Transactions (Feb. 28, 2007).

[Source: WayTooHigh.com®, via Digital Transactions]

"Credit Cards Charge Outrageous Fees" (Congress Blog)

"Concerns Over Credit Card Fees" (CBS)

Look at What Visa® is Up to Now (WayTooHigh.com)

The organization that "has the financial support from Visa USA®, is up to new tricks. We have long followed the "grassroots" gamesmanship of the Americans for Consumer Education and Competition, but their latest scheme called StopCheckOutFees.com is more than reaching.

Although we are also quoted and named within its silly site, we are in good company. The headline: "Mega Retail Corporations are Suing to Add Check-out Fees." Our company (30 Minute Photos Etc.) certainly is not a mega-corporation, but rather an entrepreneurial ecommerce and retail business which was the first to launch the antitrust litigation against the two leading card associations and member banks. The mega-corporation is the banking industry battling us, the millions of merchants across the nation seeking to terminate the nearly $40 billion hidden tax on consumers and retailers.

The name tag printed in the photo on their website says: "Big Store Bob," but for accuracy it should say: "Big Bank Bob."

The new website almost has it right. but, rather showing a giant charge card receipt listing the total, tax and "check out fee," imagine if after the line item "total charge," if consumers and retailers saw the exact merchant interchange fee for every transaction clearly printed on every receipt.


[Source: WayTooHigh.com]

Is MasterCard's new Ad Campaign Disingenuous? (WayTooHigh.com)

Sunday evening, on the ABC-TV network , during the biggest awards show, MasterCard Worldwide® will debut a series of tv spots to showcase how fast and convenient their PayPass® cards are. But, as a retailer and ecommerce business owner, there is an even more pronounced benefit: greed. With nearly $40 billion dollars in hidden merchant interchange taxes forced on consumers and retailers in each year, there is, in our opinion, a level of misrepresentation. More important than speed and convenience are the charges levied on consumers and merchants which in most cases are invisible, even though it can range as high as 5% and more for merchant interchange fees. A more priceless spot, which would win raves from retailers is if one of the commercials presented equal time for honestly depicting the hidden costs of their payment system.

[Commentary: WayTooHigh.com]

Is MasterCard's new Ad Campaign Disengenuous? (WayTooHigh.com)

Sunday evening, on the ABC-TV network , during the biggest awards show, MasterCard Worldwide® will debut a series of tv spots to showcase how fast and convenient their PayPass® cards are. But, as a retailer and ecommerce business owner, there is an even more pronounced benefit: greed. With nearly $40 billion dollars in hidden merchant interchange taxes forced on consumers and retailers in each year, there is, in our opinion, a level of misrepresentation. More important than speed and convenience are the charges levied on consumers and merchants which in most cases are invisible, even though it can range as high as 5% and more for merchant interchange fees. A more priceless spot, which would win raves from retailers is if one of the commercials presented equal time for honestly depicting the hidden costs of their payment system.

[Commentary: WayTooHigh.com]

"EU's Kroes Underscores Plan to Investigate Visa" (via Reuters)

"Credit Card Fees Add $169 Million to Cost of Valentine's Day" (Merchants Payments Coalition)

(via PRNewswire)

WASHINGTON, Feb. 13 /PRNewswire-USNewswire/ -- Visa, MasterCard andtheir affiliated banks will receive a one-day Valentine gift of $169 million this year because of hidden "interchange" fees collected on transactions during the holiday, the Merchants Payments Coalition (MPC) said today.

"Visa and MasterCard are plucking a few petals off every rose this Valentine's Day," MPC Chairman Mallory Duncan said. "Whether it's a bouquet of flowers, a box of chocolates or a diamond ring, credit card companiesare seeing a windfall because of their secret interchange fees that driveup the price of virtually every product in virtually every store. In an atmosphere of romance, interchange is a love-hate relationship -- Visa and MasterCard love to charge these fees and consumers hate to pay them."

Largely unknown to most consumers, interchange is a percentage of each transaction that Visa and MasterCard collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to 2 percent formost credit card and signature debit transactions. Visa and MasterCard interchange fees totaled $30.7 billion in 2005, up 17 percent from 2004 and 85 percent since 2001. The average family in the U.S. pays more than $300 every year in hidden interchange fees.

Valentine's Day spending is expected to total $16.9 billion this year, according to the National Retail Federation. Credit cards typically account for about half of consumer transactions, so at 2 percent that amounts to$169 million, according to MPC calculations.

Unlike other fees that show up on cardholders' monthly statements, interchange fees are not disclosed to consumers. Visa and MasterCard's non-negotiable contracts effectively require merchants to include the fees in the price of merchandise, forbid them from being shown on cash register receipts and effectively bar cash discounts. A recent MPC poll found that 68 percent of consumers surveyed had never heard of interchange, but 94 percent thought the fees should be disclosed and 91 percent felt Congress should require disclosure from the card companies."

The Merchants Payments Coalition, a group of nearly 30 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses that accept debit and credit cards, 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 2.7 million stores withapproximately 50 million employees.

For further information, please visit unfaircreditcardfees.com

"OFT to Expand Plastic Card Charges Probe" (via Reuters)

"U.S. Adults Say Visa and MasterCard Should Disclose Hidden Interchange Fees" (MPC)

Poll Finds 9 of 10 Consumers Want Congress to Require More Disclosure

WASHINGTON, D.C. February 6, 2007 – Consumers overwhelmingly believe that Visa and MasterCard should disclose the $30 billion in hidden “interchange” fees they charge each year and consumers want Congress to do something about it, according to a new poll released today by the Merchants Payments Coalition (MPC) that was conducted by Harris Interactive®.

“The way credit card companies hide interchange fees is indefensible,” said Mallory Duncan, senior vice president and general counsel at the National Retail Federation and chairman of the MPC. “Interchange fees add up to twice what consumers pay in late fees but they’re kept secret and never disclosed to consumers. Consumers want that to end. They want to know how much they’re paying.

”Nine out of 10 U.S. adults believe credit card companies should disclose how much they charge in interchange fees and how those fees are set. Consumers also want Congress to require credit card companies to be more forthcoming about their policies and practices.

The poll found the following results:94 percent said credit card companies should be required to disclose to consumers the amount of interchange fees they charge.

• 93 percent said credit card companies should be required to inform consumers how interchange fees are set.
• 91 percent said Congress should require credit card companies to be more open about their policies and practices regarding interchange fees.
• 91 percent disagreed that credit card companies should be allowed to set interchange fees without notification to consumers.
• 83 percent disagreed that credit card companies should be allowed to continue to charge interchange without change to their current policy.

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

According to MPC, Visa and MasterCard interchange fees totaled $30.7 billion in 2005, up 17 percent over 2004 and an 85 percent increase since 2001. The average family in the U.S. pays more than $300 each year in hidden interchange fees.

Unlike other fees that appear on the cardholder’s monthly statement, credit card company rules make it virtually impossible to inform consumers how much they are paying in interchange fees. The Harris Interactive survey found that 68 percent of U.S. adults had never heard of the interchange fee.

Release of the poll comes as interest in the interchange issue is growing in Congress. Senate Banking, Housing and Urban Affairs Committee Chairman Christopher Dodd, D-Conn., said last month that he plans to hold a hearing on interchange as part of a series of hearings looking into credit card industry practices. The Senate Judiciary Committee and a House Energy and Commerce Committee subcommittee held interchange hearings last year.

About the survey

This survey was conducted online within the United States by Harris Interactive via its QuickQuerySM online omnibus service on behalf of The Merchants Payments Coalition between January 16-18, 2007 among 2,214 adults (aged 18 and over). Figures for region, age within gender, education, household income and race/ethnicity were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents’ propensity to be online.

With a pure probability sample of 2,214 one could say with a ninety-five percent probability that the overall results would have a sampling error of +/- 3 percentage points. Sampling error for data based on sub-samples would be higher and may vary. However, that does not take other sources of error into account. This online survey is not based on a probability sample and therefore no theoretical sampling error can be calculated. The full results of the poll can be found at unfaircreditcardfees.com

The MPC, a group of nearly 30 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses that accept debit and credit cards are 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 2.7 million stores with approximately 50 million employees. For further information, please visit unfaircreditcardfees.com

About Harris Interactive®

Harris Interactive is the 12th largest and fastest-growing market research firm in the world. The company provides innovative research, insights and strategic advice to help its clients make more confident decisions which lead to measurable and enduring improvements in performance. Harris Interactive is widely known for The Harris Poll, one of the longest running, independent opinion polls and for pioneering online market research methods. The company has built what it believes to be the world’s largest panel of survey respondents, the Harris Poll Online. Harris Interactive serves clients worldwide through its United States, Europe and Asia offices, its wholly-owned subsidiary Novatris in France and through a global network of independent market research firms. The service bureau, HISB, provides its market research industry clients with mixed-mode data collection, panel development services as well as syndicated and tracking research consultation. More information about Harris Interactive may be obtained at harrisinteractive.com.

The MPC, a group of nearly 30 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses that accept debit and credit cards are 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 2.7 million stores with approximately 50 million employees. For further information, please visit unfaircreditcardfees.com.

[Source: MPC]

"Unintended Consequences" (Digital Transactions, Feb, 2007)

Click here to view the February edition of Digital Transactions Magazine. Good overview on the interchange issues. Within the article, in what could easily have been a dyslexic-type comment, it was reported that the [card associations] are looking for ways to add value for the merchant.” We cannot help but adjust that quote to a more accurate representation by suggesting that the card associations are looking for ways to add value from the merchants.

Pages of interest are within the February edition are:

• Page 6 - Stewart, editor-in-chiefs commentary on merchants and interchange fees.
• Page 14 - Jane Adler reports on "Unintended Consequences"

[Source: Via "Digital Transactions"]

"EU: Europeans 'Ripped Off' by Too High Banking, Card Costs" (AP, via IHT)

"American Merchants Welcome Today's EU Report Calling for Closer Scrutiny of Interchange Fees" (MPC)

WASHINGTON, Jan. 31 - The Merchants Payments Coalition (MPC), an organization representing retailers, online merchants, and other businesses that accept credit and debit cards, welcomed today's release of a European Union (EU) policy report that calls for closer scrutiny of competition in the European retail banking sector.

The European Competition Commission report expressed concern about a number of practices the Commission believes could limit competition in the credit card business. Among the practices that worry the Commission is the "interchange fee" that banks and credit card companies charge merchants every time a credit or debit card is used to make a purchase.

"The EU Commission's conclusion that interchange fees should be the subject of further antitrust inquiries is a big win for the European merchants and consumers who are still forced to pay these hidden fees," said Mallory Duncan, chairman of the MPC and senior vice president and general counsel at the National Retail Federation. "The card companies set their fees in secret and won't even allow merchants to disclose them to consumers. Both here and in Europe, interchange remains the biggest fee consumers have never heard of," Duncan added.

The Commission report calls for closer examination and continued scrutiny of interchange fees to make sure that they are transparent and set fairly "as a result of competitive outcome."

"It is clear that the present level of interchange fees in many of the schemes we have examined does not seem justified," European Commissioner for Competition Policy Neelie Kroes said after releasing the report. "Customers already pay the cost of interchange fees, since retailers pass them on in higher retail prices, paid not only by card users but also by customers paying cash. So reducing these fees would, on balance, benefit consumers." Kroes added.

Interchange fees vary with type of merchant, transaction and card, but average close to two percent for most credit card transactions. In the United States, interchange fees totaled $30.7 billion in 2005, up 17 percent from 2004 and 85 percent since 2001.

European merchants groups have expressed concern that their expenses will increase significantly if Visa and MasterCard are allowed to charge interchange fees the same way they do in the United States. According to MPC chairman Duncan, "Europeans may disagree about a lot of things, but they appear united in their opposition to hidden interchange fees."

In the United States, Visa and MasterCard are already facing antitrust litigation arising from the way they set interchange fees. In 2006 the Senate Judiciary Committee held a hearing on interchange fees and Senate Banking Committee Chairman Chris Dodd (D-CT) has announced plans to do the same.

The MPC, a group of nearly 30 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses that accept debit and credit cards are 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 2.7 million stores with approximately 50 million employees.

For further information, please visit unfaircreditcardfees.com

[Source: PR Newswire via Merchants Payments Coalition]

"EU Finds Bank Card Issuers Break Antitrust Law" (MarketWatch)

"A Lifetime of Photos on a Single Disc" (WSJ, subscription required)

30 Minute Photos Etc. featured in Wednesday's Wall Street Journal.

The month comes to a close with a feature profile on our company in the Wall Street Journal. We have long advocated that with technology should come lower prices. What use to cost consumers $5.00 is now 5-cents. 30 Minute Photos Etc. created this new photo imaging business model and has long been advocates for cutting edge initiatives; the most well known is as lead plaintiff in the multi-billion dollar merchant interchange antitrust litigation.

Click here to read the WSJ article, subscription required

[Source: WayTooHigh.com]

"Card Fees Worry Retailers" (ArgusLeader.com)

"Card Giants Tussle Over Europe System" (WSJ, Subscription required)

"EC Abandons Retailers and Backs Down on Interchange Fees" (Finextra.com)

"EU to Threaten Banks, Credit Card Firms, Draft Says" (Bloomberg)

"Congress Targets Credit Card Companies For Reform" (ConsumerAffairs.com)

Anatomy of an Interchange Charge (WayTooHigh.com)

Just moments ago, a retail customer at 30 Minute Photos Etc. presented us with their debit card; however, the electronic payment card terminal was unable to process their transaction.

This typically is caused due to a faulty magnetic strip on the card. What does this mean to retailers? The transaction had to be manually keyed into the terminal at the signature card, non-PIN rate. And there are more fees too. Because we were unable to swipe the card, a higher interchange fee was imposed. And then an even higher fee because the card terminal prompted us for the street and zip code cardholder's information. If you do not enter that information, there is an even higher fee. Because the transaction with the customer was delayed, we did not want to further inconvenience the shopper by asking for the street and zip code information as well. Just another day in the interchange fee battle.

[Source: commentary, WayTooHigh.com]

Citibank® Debit MasterCard's® Unfriendly "Journey." (WayTooHigh.com)

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

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

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

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

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

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

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

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

How can they get away with such unbridled greed?

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

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

[Source: WayTooHigh.com]

"Merchants Protest Credit-transaction Fees" (The Sun News)

"Visa and MasterCard made $30.7 billion in 2005 by charging merchants a percentage of each credit card transaction. The National Retail Federation also estimates that those earnings will climb to the $40 billion range for 2006, and the retail industry is joining forces with politicians to discuss restrictions on credit card companies..."

[Source: The Sun News]

"Merchants Applaud Congressional Call for Disclosure from Credit Card Industry" (MPC)

WASHINGTON, Jan. 25 /PRNewswire-USNewswire/ -- The Merchants Payments Coalition (MPC) Legislative Committee Chairwoman Jennifer Hatcher today issued the following statement based on comments from Senator Christopher Dodd (D- CT), Chairman of the Senate Committee on Banking, Housing and Urban Affairs, at this morning's Hearing titled "Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry and Their Impact on Consumers."

"We applaud the efforts of Senator Dodd (D-CT), who called for heightened scrutiny into the credit card industry and will be holding a series of hearings in coming months to investigate further among other topics the practice of hidden credit and debit card 'interchange fees.' The credit card companies have long profited from placing hidden fees and practices on unsuspecting merchants and consumers.

The interchange fee is the biggest fee consumers have never heard of and accounts for more than the total of all other consumer fees such as late fees and over-the-limit fees.

Last year, Visa and MasterCard generated more than $30 billion in credit and debit card interchange fees -- a fee set in secret by Visa and MasterCard and imposed on merchants and consumers by the credit card industry and completely hidden from consumers."

The MPC, a group of nearly 30 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses that accept debit and credit cards are 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 2.7 million stores with approximately 50 million employees. For further information, please visit http://www.unfaircreditcardfees.com

[Source: via Merchants Payments Coalition news release]

Summary: Briefing on Interchange Issues (WayTooHigh.com)

This marks our 625th posting on WayTooHigh.com - The Credit Card Interchange Report.

The daily news and commentary updates are edited by entrepreneurs who know first hand about all the issues, as we are also the lead plaintiffs in the interchange battle (the first to file, back in June, 2005) .

Earlier today, Senator Christopher Dodd (D- CT) provided an opening statement during hearings in Washington that including mention that the "costs associated with these fees are expected to be between $30 and $40 billion this year alone."

As background for our growing universe of international readers, we are providing the following summary as an overview of the interchange fee issues impacting consumers and retailers. This informational web site was created to provide news and commentary updates only. None of the information posted on WayTooHigh.com is intended to constitute legal arguments; it reflects only the opinions of its co-editors and not of any other plaintiffs or other parties involved in the merchant antitrust litigation. The information is not guaranteed to be correct, complete, or current. We make no warranty, express or implied, about the accuracy or reliability of the information posted by WayTooHigh.com or at any other Web site to which this site is linked.

Summary

Interchange fees are the hidden fee collected by Visa® and MasterCard®-issuing banks every time a Visa or MasterCard cardholder makes a purchase with their credit or debit card. Annually, these issuing banks collect interchange fees totaling more than $30 billion in the U.S. alone. Although the Visa and MasterCard-issuing banks are ostensibly in competition with one-another, they do no compete on the interchange fees they charge. Instead, they set interchange fees collectively, which is a clear violation of U.S. Antitrust laws.

Along with millions of other merchants, we believe that, absent collusion between the issuing banks, interchange fees would be much lower. The average rate in the U.S. is 1.7%, in Australia it is .55% and in the UK it is just .7%. In Canada, the interchange fee for PIN-based debit cards is zero, just as are charges for check writing, although there are significant costs to clear and process paper checks. Our hope is that the judge will rule that "fixed interchange" is illegal, allowing for market competition between the issuing banks that will result in lower interchange fees. This will benefit all U.S. merchants and consumers (lower merchant costs translate to lower consumer prices). We are also seeking damages for the harm already inflicted on merchants by Visa, MasterCard, and their issuing banks in the form of the existing, artificially-high interchange fees.

[Commentary: WayTooHigh.com]

Opening Statement by Senator Christopher Dodd (D- CT), Chairman of the Senate Committee on Banking, Housing and Urban Affairs (U.S. Senate Website)

OPENING STATEMENT OF CHAIRMAN CHRIS DODD - HEARING TO EXAMINE THE BILLING, MARKETING, AND DISCLOSURE PRACTICES OF THE CREDIT CARD INDUSTRY, AND THEIR IMPACT ON CONSUMERS

See excerpt from opening statement below:

...But I would like to put the credit card industry, issuing banks and card associations on notice. If you currently engage in any business practice that you would be ashamed to discuss before this Committee, I would strongly encourage you to cease and desist that practice. Irrespective of the current legality of such practices, you should take a long, hard look at how you treat your customers, both in the short term and the long term.

And lastly, I would be remiss if I did not mention one issue likely not to be explored today-- credit card interchange fees. These fees are imposed on merchants and consumers by banks and card associations when a credit or debit card is used to pay for a purchase. Interchange fees are growing exponentially– and the costs associated with these fees are expected to be between $30 and $40 billion this year alone. These opaque fees, assessed on merchants, are passed on, in part or whole, to consumers who have no knowledge or understanding that a fee is even a part of the cost of bread or milk, or any other consumer product.

I believe that this is another area that this Committee should examine as part of the series of hearings on credit cards.

[Via U.S. Senate Hearing, click here for link]

"Dodd Promises Scrutiny on Credit-card Industry" (MarketPlace)

Reminder: EU Credit Card Decision Expected Next Week (WayTooHigh.com)

The EU Commission decision on fees for credit-card operations is expected to be made public on January 31, 2007.

[Source: WayTooHigh.com]

U.S. Senate Banking Committee Hearing (WayTooHigh.com)

Click here for information on the U.S. Senate Committee on Banking, Housing, and Urban Affairs Titled: “Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers.”

[via U.S. Senate Hearing Schedule]

"Senate Committee to Examine Credit-card Industry" (MarketWatch)

Shouldn't Technology Lower Interchange Costs? (WayTooHigh.com)

We have long advocated that technology increases efficiencies and helps lower costs. That is unless you have a service that is controlled by unbridled collusion and (allegedly) illegal price-fixing by agreement.

Another example is our newest service launched today. Just one year ago, we were charging up to $5.00 to scan a single photograph. Then, with the application of new Kodak imaging high-speed scanners and Kodak Capture software, we designed a new flat-rate scanning service for just $49.95 to scan up to 1,000 photos, instantly! That was fast and garnered great media buzz and excitement at the recent Consumer Electronics Show educational panel which we addressed.

We mentioned that like most services today, everything must be effortless, instant and inexpensive. That raises the question of why our independent photo specialty retail and national online boutique photo service can employ technology and entrepreneurial smarts to create an entirely new market and share extraordinary saving with our customers, while the credit card association's continue to raise their fees?

For us, 1,000 photo scans for $49.95 was old news. Now, we just launched ScanMyPhotos.com for unlimited photo scanning where you "fill-the-box" and get prepaid round-trip delivery too for just $99.95. More info, click here.

If we can continually create new cost savings and efficiently help consumers, why can't Visa and MasterCard?

[Source: commentary, WayTooHigh.com]

Forcing Credit Card "Convienence" Fees (WayTooHigh.com)

Imagine if 30 Minute Photos Etc. tacked on a 2% or 2.5% "convenience" fee for all our ecommerce and retail customer charge transactions? This would be in violation of our agreement with Visa® and MasterCard®, as we are disallowed from adding a surcharge to cover electronic payments. [See MasterCard's 268 page "merchant rules manual"].

However, while retailers are precluded from passing on the interchange fee, municipalities regularly do exactly that. When you pay property taxes with a credit card, the cities force people to pay an extra fee. If you use a debit card, the funds are instantly deducted from you account, yet the municipalities still get that added revenue.

Take a look at three examples:

Orange County, California

Lynchburg, Virginia

Lexington County, South Carolina

[Source: WayTooHigh.com]

Feedback From Franchisee at Giant Fast Food Chain (WayTooHigh.com)

It wasn't just our presence at CES that drew cheers from entrepreneurial supporters, just today we heard from another important customer. A very sweet lady brought in a photograph to be restored and then explained how much she has enjoyed reading about our many years of civic activism and appreciation for our role as class representative in the merchant interchange battle against Visa® and MasterCard®.

Her own experiences were consequential and added more fuel to our quest because she is a franchisee - owning several fast food restaurants with one of the world's largest chains. According to her, the average sale at her company is about $3.50 and she is now forced to accept all major credit cards. Some key points from our discussion were that the availability of credit cards have led to no appreciable increase in sales and she had to hire an extra bookkeeper just to track all the statements and charges from the card associations. She seemed very connected to the fast food restaurant industry and mentioned that it is not just her, but other franchisees and owners who cannot tolerate the cards; it is too costly. Her staff is trained to ask if it is a debit or credit card, but often she is forced to pay the higher signature card rates anyway.

She explained the acceptance of credit cards are much like "green fees" at a golf club; it is something that they have to pay but provides little benefit, especially because most patrons are spending just a few dollars and have cash anyway. While Visa and MasterCard will challenge these statistics, take it from a franchisee owner who knows her market and business.

But, it is not just fast food, as she mentioned that a local service station is regularly accepting charge cards for items as small as a pack of gum. Take a look at today's Wachovia and Bank of America quarterly results if you want more insights into just how profitable interchange fees are.

[Source: WayTooHigh.com]

"BofA Profit Surges on Card Growth" (The Street.com)

BofA Quarterly highlights via Edgar online

• Debit card revenue increased 23 percent to a record $1.91 billion.
• During 2006, the company acquired and successfully integrated MBNA Corporation, making Bank of America the largest credit card issuer in the U.S. and U.K.
• Fourth quarter net income for Global Consumer and Small Business Banking rose 44 percent to $2.53 billion from the year earlier period. Revenue in the period increased 46 percent to $10.63 billion, driven primarily by higher credit card income, including the addition of MBNA, and service charges.

"Visa Awaits EU Report on Fees" (WSJ, subscription required)

(repost) "Credit Card Companies Fear 'Perfect Storm'" (ConsumerAffairs.com)

As background, repost, May 3, 2006, via ConsumerAffairs.com

"The Corrosive Siege Over Signature-Card Interchange" (Digital Transactions)

(repost) "Millions of Retailers Across the Nation Enter Battle Against Banks' Credit Card Associations" (CSN)

As background, repost from Sept 30, 2005. via Convenience Store News.

Confusing Debit Cards (WayTooHigh.com)

After Tuesday's front-page Wall Street Journal article on debit cards, we were concerned that cardholders might not be familiar with the varied schemes employed by Visa® and MasterCard®. The card designs are increasingly more confusing and leading towards misidentifying PIN vs. Signature cards.

Just moments ago, a customer presented us at our retail photo center (30 Minute Photos Etc.) with one of the most disingenuous debit card designs yet. The word "debit" was nearly invisible and imprinted within the hologram. That trick is something we have been familiar with, but it was the other placement that elevated our dismay. The word "debit" was vertically imprinted on the center on the left side of the card in tiny lettering and in black which was nearly indistinguishable from the other graphics on the card.

Why is this so important?

The card associations are encouraging consumers to use debit cards, which instantly deduct funds from their bank account, but then use creative marketing and card designs to force merchants to accept the electronic payments at the much higher percent-of-sale rates. The banks' risk is limited; they receive immediate payment, yet charge U.S. merchants what amounts to among the highest interchange rates in the world.

Click here for more info.

[commentary: WayTooHigh.com]

"The No. 2 Credit Card Issuer Is Banking On Big Expansion Plans" (Investor's Business Daily)

"Visa Chides EU on Credit-Card Fees Plan" (BusinessWeek)

"As Credit Card Fees Climb, Merchants Push PINs" (WSJ, Subscription required)

Robin Sidel reports in today's WSJ (Jan 16, p-1) about the interchange fees for credit and debit cards and how retailers are pressing consumers to use PIN cards. However, the banks are using marketing campaigns and promotions to counter by incentivising cardholders to use signature cards so they can enter contests and earn rewards.

Read more.

[Source: Via WSJ, Subscription required]

"EU Move to Ban Card Fees Would Hurt Consumers, Visa Europe Says" (BBJ)

According to Hungary’s leading English-language business weekly, Budapest Business Journal, Visa Europe's CEO commented to journalists in Brussels that they must resolve legal questions this year about the fees known as interchange.

The article refers to Competition Commissioner Neelie Kroes vowing last year to fine card companies unless they changed their business practices. In our opinion, pawning off their legal liabilities onto the public through IPO's and other games, like covertly posting interchange rates on its website, and limiting interchange fees at the gas pumps are all window dressing. The real issue remains that the two leading card associations stand accused (by us and many others) of anti competitive and illegal price-fixing by agreement violations.

[Source: WayTooHigh.com via Budapest Business Journal]

"CES Panelist Calls for Interchange Oversight" (Supermarket News)

"Credit-Card Solicitations Are Full of Naughty Surprises" (MarketWatch)

Excerpt: "Banks are counting on the fact that they will get increased interchange income from merchants, which can run as much as 5 percent per transaction..."

(Source: MarketWatch)

Lowering the Interchange Fee Cap at the Pumps? (WayTooHigh.com)

Was it an arbitrary number MasterCard® used to identify the interchange fee cap at the pumps last fall? Motorists were limited to paying fees on only the first $50 per fill-up at the pumps. But, as gas prices have plunged to a 19-month low, will the card association recalibrate its pricing matrix and lower the cap at the pumps?

And, since this action presents more proof that they recognized interchange fees cost a fractional amount of what is forced on retailers, placing a limit on gas station fees raises additional questions. Such as, why are interchange fees at Cartier and high-end boutiques not also limited too? It seems that whether it is a tank of gas or fine jewelry, the same windfall profiteering and price fixing assertions can be made.

Will we now see an interchange fee cap of $25 per fill-up, or less?

[Source: commentary - WayTooHigh.com]

Why Interchange Fees Concern Retailers and Consumers (commentary: WayTooHigh.com)

Having just returned from the International Consumer Electronics Show in Las Vegas, there were several instances where I felt more like a rock star than an entrepreneur at the world's largest consumer technology trade event. There were lots of smiles and thumbs-up from those who were familiar with my role as lead plaintiff in the merchant interchange litigation. Business owners and even consumers were in our camp. Several people I ran into shared their own horror stories.

For me, the point of excessive interchange fees hit home during Michael Dell's Tuesday keynote presentation at the Venetian Hotel. At one point, he had "Doctor Evil," the character from the Austin Powers films appear on stage after a 30-year deep freeze. Doctor Evil showed Dell Computers' founder his 30-year-old computer and wanted to get his "crap" off the antiquated machine; Dell was introducing new products to preserve files stored on older model computers. I couldn't help but draw several analogies about credit card fees and the differences in technology and higher fees than from three decades ago when antiquated manual card imprinters were used.

As a speaker at CES, I addressed the future of the photo imaging industry, but throughout the show, many people I met were familiar with our litigation against Visa®, MasterCard® and its member banks. CES was not a very friendly place for the card associations, especially because it united retailers and ordinary shoppers together; both are impacted by these fees.

One observation I raised was how ironic it was that the nation's largest trade show just celebrated its 40th anniversary - it was founded in New York City in 1967. While the bulk of the products promoted at the show will be purchased with Visa or MasterCard (they control 80% of the market), the two leading card associations operate in a 1960's type-fee structure. Back then we were in a paper economy, today with technology, everything is digital, yet Visa and MasterCard's price structure is based on costs from 40-years-ago.

Click here for previous "Credit Card Interchange Fee Draw Criticism and Concern at CES" press release.

Overview of Interchange Issues:

• Interchange fees have more than doubled in the last 10-years.
  
• Few customers know about interchange fees because it is virtually impossible for merchants to tell customers what the exact fee is.
  
• Every consumer pays for these hidden credit card fees, even cash customers because the cost is built into every product - a gallon of milk bought with cash by a mom is also paying to award premium signature card holders' bonus mileage to Europe.
  
• Interchange fees are one of the worst and most unfair fees paid by American consumers - it's more than six times what people paid in ATM fees.
  
• Visa and MasterCard control an 80% market share of the card market and control a system that is anti-competitive.
  
• Visa and MasterCard threw a bone to service stations and motorists last fall, after the peak summer driving season by capping fill-up interchange fees at $50. This was a hollow gesture and not very genuine, especially as fuel costs have recently subsequently plunged.
  
• Huge profits: Even though the actual cost to process a $1 transaction is virtually the same as that of a $10,000 transaction (buy a soda or a Cartier watch), the interchange fee is based on a percentage of the total. Even Realtors lowered their take when housing prices soared. The interchange fees are far higher than the actual cost o the transaction they are meant to pay for. The technology used to process credit card transactions are today more efficient and less expensive.
  
• Why are interchange rates higher in the U.S. in most other industrialized nations? U.S. interchange fees are close to 2%, while other countries, like the UK are typically 0.7% and Australia averages 0.55%.
  
• Did you know that merchants are forbidden from disclosing to consumers the fees that are charged?
  
• Behind closed doors, Visa and MasterCard meet to increase these anti-competitive hidden fees. We understand that these price-fixing practices are in violate antitrust laws.
  
• Few things are more anti-competitive than the credit card market - virtually every other marketplace lowers prices because of competition.
  
• Study the market dynamics of other counties with significantly lower interchange rates to understand that the banks and card association are still doing well and they have not experienced disruptions in transaction handling processes, despite lower rates.
  
• The banks which make up Visa and MasterCard have colluded to set these fees which in any other industry would be a clear violation of federal antitrust laws
  
• With a new consumer-friendly House, it will be interesting to see what actions Congress and the Senate might take in the coming months. [The Senate may launch a hearing of its own and we certainly would welcome an opportunity to share our retail and ecommerce experiences].
  
  [Source: WayTooHigh.com]

"Polish Watchdog Gets Tough on Credit-card Fees" (EurActive.com)

"Competition watchdog OCCP has declared the fees that banks charge on transactions made with major credit cards as unlawful, in an effort to reduce costs for consumers."

"Hidden Fees Bring Big Profits to Credit Card Companies " (MPC)

Credit Card Interchange Fees Draw Criticism and Concern at CES (WayTooHigh.com)

Visa and MasterCard seen as major culprits in predatory credit card processing fees and practices

January 9, 2007, (Las Vegas, NV)—Credit card interchange fees and abusive practices were discussed at the 40th annual Consumer Electronics Show being held in Las Vegas, NV this week.

At the "Photography Fights Back!" panel discussion today, Mitch Goldstone, the president and CEO of 30 Minutes Photos Etc., discussed the challenges that face many business owners and consumers who use credit cards for purchases and payments. Interchange fees are a percentage of each transaction that Visa® and MasterCard® member banks collect from merchants every time their credit or debit cards are used to pay for a purchase.

The fee varies with the type of merchant transaction but the average is nearly 2 percent for most credit card purchases. Goldstone, in his comments, called on members of the house and Senate to seriously consider the potential benefits of oversight and regulation of these fees.

Speaking from the Venetian Hotel, where educational sessions for the Consumer Electronics Show is taking place, Goldstone commented, “What Visa and MasterCard are doing hurts the merchant, the consumer and in reality, the country. I find it ironic that we are here at the 40th anniversary of the Consumer Electronics Show and that the bulk of the products here will be purchased with credit cards that operate through a 1960’s fee structure.”

In 2005, U.S. consumers paid more than $30 billion in interchange fees when using MasterCard and Visa cards, double the amount they paid in ATM fees and late fees combined. Another odd aspect of interchange fees is that the United States pays the highest rate despite having the most advanced technology. For example, United Kingdom consumers pay roughly half the U. S. consumer rate, and Australian consumers pay a third. A recent survey also discovered that the United States and Canada are the only countries that have seen recent increases in interchange fees. Fees in the U.S. are among the highest for any industrialized nation and more than double many other countries.

“It’s no coincidence that U.S. consumers pay the highest rate as they are the most active card users. Other countries have recognized that the interchange fee is a hollow, almost punitive, processing fee that doesn’t cover any provided service,” said Goldstone, who is a lead plaintiff and class representative in the multi-billion dollar antitrust class-action litigation against Visa and MasterCard. “It made sense in the 60s, 70s and maybe even the 80s when paper transactions and human interactions and approvals were the norm. Today, the same transactions are approved and funds delivered within seconds, therefore there is no need or rationale for the fee.”

In an example of how interchange fees function, imagine a consumer making a $100 purchase with a credit card. For that $100 item, the retailer would get approximately $98. The remaining $2, known as the merchant discount or interchange (which is actually a fee), gets divided up. About $1.75 would go to the card issuing bank and $0.25 would go to the retailer's bank. Under the current structure, these fees are an unnecessary tax on merchants, consumers and burden economic growth.

Goldstone is also co-editor of WayTooHigh.com – The Credit Card Interchange Report which provides international daily news and community updates on interchange issues.

[Source: WayTooHigh.com]

"MasterCard [and Visa] Reaches Federal Settlement" (The Journal News)

New House Committees (WayTooHigh.com)

Welcome to the incoming House Financial Services Committee Chairman Barney Frank, D-Mass.

[Source: WayTooHigh.com]

"Credit Card Firms Slam RBA Review" (The Sydney Morning Herald)

Preparing for CES (WayTooHigh.com)

Next week we embark on what has become the largest trade show in the U.S.

30 Minute Photos Etc. is scheduled to address the International Consumer Electronics Show on Tuesday at 10:00 a.m. at the Venetian Hotel. Click here for more info.

[Source: WayTooHigh.com]

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

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

[Source: Via Federal Reserve Bank of Kansas City]

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

Advisory

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

Click here for session details.

MasterCard's® Planned Interchange Fee Cap For Gas Retailers (WayTooHigh.com)

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

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

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

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

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

Out of Touch (WayTooHigh.com)

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

"MasterCard Offers Concessions In Interchange Fee Battle" (ConsumerAffairs.com)

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

[Commentary: WayTooHigh.com]

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

Why Credit Card's Can Be Scrooges During The Holidays (commentary: WayTooHigh.com)

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

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

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

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

[Source: Commentary, WayTooHigh.com, via The Motley Fool]

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

"MasterCard's Fee Cut Under EU Anti-trust Scrutiny" (EurActiv.com)

Anatomy of How Technology Should Reduce Costs (commentary: WayTooHigh.com)

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

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

$5.00 PHOTO SCANNING NOW JUST 5-CENTS

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

PHOTO GREETING CARDS ARE READY IN MINUTES AND COSTS A FRACTION OF THE LABOR AND PRICE FROM JUST A FEW YEARS AGO

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

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

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

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

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

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

[commentary: WayTooHigh.com]

Seven Dollars vs. 55-cents (WayTooHigh.com)

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

Why?

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

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

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

[WayTooHigh.com]