The Prepaid Press - June 15, 2008 - (Page 23)

PAYMENTS June 15 · 2008 - 23 Interchange Fee War Begins By Gene Retske the 200 categories, and the merchant will end up paying as much as 4% to 5% for some of the other categories,” said Carr. For years, the biggest card issuers, Visa and MasterCard, did not give merchants details on the charges, so merchants were unable to find out exactly what they were paying, even after the statement arrived. A class action lawsuit filed on behalf of merchants forced Visa and MasterCard to publish the fees, although the complexity of the rates made it impossible for most merchants to understand them. House Judiciary Committee Hearing Sets Stage President and General Counsel Mallory Duncan said. “This legislation would bring about true competition among the banks that issue credit cards, giving retailers the opportunity to negotiate terms on behalf of themselves and their customers that reflect the actual cost of the services provided.” At the May 15 hearing, the House Judiciary Commitee task force heard from all sides in the dispute. Witnesses included Thomas L. Robinson, Vice President of Regulations, National Association of Convenience Stores; Joshua R. Floum, General Counsel and Corporate Secretary, Visa Inc.; Steve Cannon, Chairman, Constantine Cannon, LLP; Joshua Peirez, Chief Payment System Integrity Officer, MasterCard Worldwide; John Blum, Vice President of Operations, Chartway FCU, Edward Mierzwinski, Consumer Program Director U.S. PIRG. Even if you have never heard of Interchange Fees, they are a significant issue, for consumers but especially for merchants and prepaid providers. At a U.S. House Judiciary Committee hearing on May 15, the battle lines were drawn, and the gauntlet laid down. Interchange fees are not a new issue; retailers have been arguing with the financial industry for years over the cryptic and often hidden charges. But, now Congress is now stepping in, threatening to end the impasse. Interchange Fees, A Primer When merchants and retailers submit credit and debit card transactions to a processor to be paid, they are charged a fee for processing the transaction. Unfortunately, the fee is not a stan- “I got a bill that was eye-popping, so I tried to figure out the fees,” said Ullsperger. “But, the entries on the statement do not always use the same terminology as in the merchant agreement.” dard, nor even a predictable fee. An interview with Bob Carr, CEO of Heartland Payment Systems that appeared in TPP in July 2007, discussed the issue in detail. When asked if the fees were standard and clearly disclosed, Carr answered, “It’s not all disclosed, and if it is, it is written in such a way that most small and medium sized business owners don’t want to hire a lawyer to translate it for them. People work overtime to try to confuse and obfuscate the whole issue so that merchants don’t understand what they are paying.” The only way merchants can understand what they are being charged is by going over their monthly merchant account bill in detail. Peter Ullsperger, owner of Lake Murray Hardware, in Ballentine, South Carolina, showed us his bill. It was a complicated listing of charges. The only way it could be understood was to sit with the multi-page merchant agreement next to the bill and go over each and every charge on the bill. Even then, it is often impossible to determine what the charges mean without calling the merchant bank and asking for clarification. “I got a bill that was eye-popping, so I tried to figure out the fees,” said Ullsperger. “But, the entries on the statement do not always use the same terminology as in the merchant agreement.” The worst part is, the fees can only be determined after they are charged. The merchant has no idea how much they will be charged for the transaction when they take a card from a customer. Certain cards have surcharges, based on what category they are assigned to, and the merchant can’t determine that until the monthly statement arrives. Carr cited an example where a merchant is quoted a 1.49% rate for credit and debit card transactions, “But, the 1.49% applies to one of Negotiation Non-Existent At the heart of the issue is the fact that small merchants cannot negotiate the interchange fees with the financial institutions. The banks that issue cards and provide merchant accounts are not motivated to negotiate, and merchants, other than large retailers, lack the leverage to force them to talk about terms. The only thing a small retailer can do is to get a different merchant account, one which is probably as cryptic as the one they currently have. According to the National Retail Federation (NRF), interchange fees cost the average American family $350 per year. This figure represents two percent of the charges on all transactions made with plastic. The U.S. number is higher than any industrialized nation in the world. The consumer impact is what caused Congress to take a closer look at interchange fees. A bill, called the “Credit Card Fair Fee Act of 2008,” was introduced this year by House Judiciary Committee chairman John Conyers (D-MI). The bill would require lenders, card issuers, who have “substantial market power,” to negotiate the terms for fees paid by merchants and retailers for processing card transactions. According to the bill, if a voluntary agreement cannot be reached, both sides would have to submit to binding arbitration overseen by the Justice Department and the Federal Trade Commission (FTC). May 15 Hearing In his opening statement when the Judiciary Committee met on May 15, Conyers said, “The aim of the bill is to simply give retailers a seat at the table that they currently do not have. Currently, the retailers are forced to enter take-it-orleave-it contracts before they can accept Visa and MasterCard at their stores.” Conyers said his legislation was intended to “give merchants a seat at the table in the determination of these fees.” He denied that it was an attempt to regulate the industry, as some critics have claimed. Conyers maintains that the bill will enhance competition by giving merchants the right to negotiate with banks, something they lack the power to do at the present time. The issue appears to have bipartisan support. The bill’s co-sponsor, Chris Cannon (R-UT), said that the bill was designed to reinforce transparency and competition in the credit card industry, two principles that are key to “the greatest economic system in the world -- free-market capitalism.” “The current system of setting fees that merchants pay for credit card transactions is anticompetitive and secretive,” he said. “This bill does not set prices. Instead, it would require that fees be set in a transparent manner so other companies can compete for business and consumers would not pay artificially high rates.” At a previous hearing in July 2007, retailers lined up to tell Congress about the hidden fees. NRF was enthusiastic about the new legislation, saying that they have been pushing for this to be addressed for years. “There is no transparency and no negotiation under the current system,” NRF Senior Vice Consumer Impact Is Catalyst In the end, it was probably the impact on consumers that spurred the legislation, since consumers ultimately end up paying the fees. According to NRF estimates, the average U.S. family is projected to pay $427 in hidden credit card interchange fees in 2008. The figure is based on the $48 billion Visa, MasterCard and their banks are projected to collect in interchange during 2008 divided by the U.S. Census Bureau’s estimate of 112.4 million households. The number is up from $378 in 2007, and has nearly tripled from the $159 paid in 2001, the year NRF began tracking interchange. Averaging close to 2 percent, interchange is In the end, it was probably the impact on consumers that spurred the legislation, since consumers ultimately end up paying the fees. a non-negotiable fee for Visa and MasterCard. Banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected an estimated $42 billion in interchange fees in 2007, and the amount is increasing at an average of close to 17 percent per year. Visa and MasterCard effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of items and making cash discounts difficult. But interchange is largely unknown to most consumers because Visa and MasterCard keep merchants from disclosing it on receipts and don’t disclose the fee on monthly statements. Retailers testified to Congress in July 2007 on the hidden penalties of interchange fees, and are welcoming the new legislation. “This legislation would use the nation’s antitrust laws to rein in the greed of the credit card companies,” Duncan said. “Rather than allowing these fees to continue to be set in secret and imposed on a take it or leave it basis, this legislation would require negotiations and allow retailers to seek fair terms and conditions that will ultimately mean a better deal for consumers.” The NRF said that consumers were already angry at how they have been treated by credit card companies, and that this bill is an important step toward making credit card companies treat both merchants and their customers with respect. edo Interactive Launches Networking Card Facecard Interactive MasterCard Introduced NASHVILLE, TN (May 27, 2008) A new company has been launched to combine technologies that utilize pre-existing payments infrastructure and modern social networking communities for digital marketing purposes. Called edo Interactive, the company will initially offer two products – the edo Marketing Platform and the Facecard Prepaid MasterCard. According to the release, the edo Marketing Platform is a behavioral targeting and advertising platform that provides an alternative from traditional media for marketers. The company said its edo Marketing Platform allows smaller advertisers who are constrained b http://www.edointeractive.com

Table of Contents Feed for the Digital Edition of The Prepaid Press - June 15, 2008

The Prepaid Press - June 15, 2008 Contents The Retske Report: The More Things Change… Regulatory Rundown: June 2008 5 Minutes With Harvey Caron VP/Marketing Director, Pentagon Graphics TPPExpo’08 Spotlight Handset Trafficking Dealt Blow Prepaid Wireless Roundup Virgin Mobile to Use Platform-A Sprint Reports Lower Wireless Revenues Virgin Mobile Adds Samsung to Offerings States Considering Photo ID for Prepaid Wireless Prepaid Reviews Podcast Includes TPP Editor Prepaid Wireless in Brief Managing Equipment and Capacity Upgrades Atlantax Systems and TMI Form Alliance The Legal Line Spot Rates FTC Halts Bogus Prepaid Phone Card Claims Titan Global Re-Appoints Kurt Jensen as Pres/CEO Calling Cards in Brief TX AG Files Suit Against Calling Card Company Startec Moves to PhoenixSoft Cirrus Ringplus.net Offers Free Calls Interchange Fee War Begins edo Interactive Launches Networking Card MasterCard Uses CSC Platform nFinanSe Gets $15 Million Line of Credit Travelex Cash Passport Debuts at US Retail Stores CardEx Offers Cost-Free Gift Cards Payments in Brief Altair and Blueberry Launch a Prepaid Card for Moms FrontStream Acquires Direct Technology Innovations New Etelcharge Version Goes Live Prepaid 101: POSA Retail Focus in Brief NRF Says Retailers Fighting Organized Crime Blackhawk Announces Annual Hawk Awards NRF Says Retail Sales Showed Resiliency in April TravelCenters Adopts Coinstar Pay As You Go Marriott Offers a $25 Visa Gift Card NRF Favors Law Protecting Retailers from Lawsuits Starbucks Card Members Get Free AT&T Wireless Wi-Fi Our Advertisers Classifieds Contact Us

The Prepaid Press - June 15, 2008

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