
Judge Approves Interchange Fee Settlement with Visa, MasterCard - jaybna
http://www.paymentsnews.com/2013/12/judge-gleeson-approves-interchange-fee-settlement-with-visa-mastercard.html
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jacknews
You've go to to love the hackernews spin on this. No more free miles, blah,
blah. Do you really think the miles were actually free? Of course they are
not.

Essentially this ruling allows retailers to pass on bank card payment fees to
customers. Previously these fees were hidden, and the retailer had to swallow
the fees, and of course ultimately pass them on to ALL customers equally as a
cost.

Now, customers themselves get to pay the fees directly, and thus have a
choice, and consequences, in which payment methods to use. And of course this
will likely have downward pricing pressure on the payment service providers,
so in a reverse of the usual story, consumers in general will benefit at the
expense of the banks.

This is the way free markets are supposed to work, as opposed to the current
cosy backroom agreements that only benefit the banks.

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darkxanthos
Was there some law saying that the retailers had to allow payment with these
cards? It seems like a "free market" as you put it should allow retailers to
no longer accept payment via certain cards if it doesn't make business sense
to do so.

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tikhonj
The payment processors have a disproportionate amount of power over merchants
because they form an oligopoly. The barrier to entry is extremely high, which
significantly distorts the markets.

The payment processors used this asymmetry to force merchants to _hide_ their
costs from the market at large. The market can't affect something when it
isn't allowed to set different prices for using the service or not!

Yes, merchants could stop using the payment processors. But, crucially,
_consumers_ can't: if a merchant used a payment processor under the old
scheme, even customers paying in cash had to pay a higher price to subsidize
this!

Couple this with the fact that the payment processor market is entirely
dominated by a bare handful of large companies, and you get something really
far from a "free" market.

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tikhonj
Miles were never _free_. They just used to be paid for equally by everyone--
including people not using credit cards! In effect, it was a sales tax imposed
by Visa and Mastercard on _everyone_.

This change will make the price of using a credit card more transparent to the
customers and will stop non-customers from subsidizing Visa et al. It's more
fair and lets the market react much more efficiently to payment processors.

This change is a net positive for the market and therefore people in general.

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gorhill
> "Miles were never free. They just used to be paid for equally by everyone--
> including people not using credit cards! In effect, it was a sales tax
> imposed by Visa and Mastercard on everyone."

You say that as if this new policy of charging extra for the airmilers will
result in lower prices for everyone else, including people not using credit
card. I don't think so.

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dwaltrip
Can you please elaborate on why you think this way?

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bsimpson
If the title is accurate, this effectively means prices are going up another
3%+ on everything over the next few years. People don't usually lower prices.

If someone was selling a $10 pizza before and paying 60c in payment
processing, he's most likely gonna charge $10.60 for the pizza now and call
the 60c additional profit. I'd be very surprised if most merchants decided to
keep charging customers with cards $10 and give a 60c discount to cash
customers.

~~~
graeme
Are there any studies on this? It's something I've wondered about.

In an efficient market, competition would force retailers to reduce prices.
But efficient markets don't exist, especially not in the short term.

I'm most interested in the long run effect. How would a shift in CC fees play
out over the long term and through the whole supply chain.

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gergles
American Express still has a no-surcharge policy and Visa/MC got MFN clauses
declared legal in the settlement, so this won't effectively change anything.

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jcampbell1
Does anyone in the payments industry know if it is possible to get the
interchange rate prior to processing a transaction? I assume only the issuing
bank has the information, and there is no way to get it from the number alone.
Do issuing banks include the interchange category with the response when
transactions happen, or is that figured out during the batch processing?

My point is, I think this judge can rule whatever he wants, but as far as I
know, there is no way to technically implement these fees.

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rahimnathwani
From the linked article: "...permit merchants to surcharge credit cards at
both the brand level (i.e., Visa or MasterCard) and at the product level
(i.e., different kinds of cards, such as consumer cards, commercial cards,
premium cards, etc.)"

The last time I dealt with a bank for a merchant account (in the UK), there
were only two tariffs: one for debit cards, and another for credit cards. (We
accepted only Visa/MC.)

The sentence above suggests that the fee structure differs among credit cards.

Can anyone share their experience of paying different rates for Visa vs. MC
and, in particular, different rates for different credit cards from a single
network?

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jcampbell1
Our merchant bank gives us interchange plus pricing, so we see all the rates.
We see about 30 different categories on our monthly statements. It is not
until we get the statement that we know what is going on. I don't think it is
possible to know the rate before doing the transaction.

Here is a link to the interchange rates for Visa (10 pages of rates):

[http://usa.visa.com/download/merchants/visa-usa-
interchange-...](http://usa.visa.com/download/merchants/visa-usa-interchange-
reimbursement-fees-april2013.pdf)

~~~
rahimnathwani
Thank you. Page 4 of that doc makes it much clearer. It seems like the fees
paid to the issuer of a Visa credit card can vary by up to ~1% dependent on
the scheme.

One more question: when you say 'interchange plus pricing', is the 'plus'
uniform across all transactions (i.e. the same $ or the same % or the same
%+$)?

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ggchappell
I imagine this is the beginning of the end of credit cards with rewards in the
U.S. Unless Congress passes some relevant law (which would not surprise me).

~~~
mililani
No ways. Unless you want to have a hard time getting a place to rent or get a
mortgage, you WILL need to have credit. I learned that the hard way when I
cancelled all my credit cards two years ago and have had no debt or loans
since. I just used debit cards for everything. And now, I'm almost a
millionaire having a hard time finding a place to rent because my credit is
not the greatest anymore.

~~~
gaadd33
He only said "credit cards with rewards", as in there's no incentive for
people to use credit cards that have a reward if they end up charged more for
every purchase.

Also if you are a millionaire and are having a hard time finding a place to
rent, why not just offer to pay 6 to 12 months of rent up front? Even in NYC
that tends to work.

~~~
klipt
Yeah, you'd think that having "good savings" is at least as good as "good
credit".

The only reason I have a credit card is in case I need good credit in the
future for a mortgage or something. Otherwise a debit card would suit me fine.

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scottfr
I expect this will be used as another tool to obfuscate prices. Just like
sales tax is effectively a semi-hidden last minute fee in America, I think we
are going to start to see all sorts of purchasing method fees at the cash
register.

It will start with credit cards but soon it will be for debit cards and there
will eventually be a "cash handling" fee if you insist on paying with cash.

These will never be included in the listed prices and they will be just small
enough that its not worth it for you to put the items back.

~~~
thatthatis
This is the bad for the consumer scenario I'm concerned about. It could waste
millions of hours of mental consumer math to save a few tens of hours of
retailer pricing math.

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lukeqsee
Will [could] this affect the price of paying for goods with my Visa/MasterCard
debit card, i.e., will this essentially make it possible for stores to charge
more for using _any_ cards? This could motivate a huge swing back to carrying
cash and checks. That being said (and understanding the inherent cost to
merchants), won't this ruling essentially set back payments by a decade?

~~~
gergles
Debit cards are exempt and cannot be surcharged.

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tzs
I'm not sure how one could actually take advantage of this. Suppose I want to
make people with rewards cards pay more at my shopping card. How do I know
they are using a rewards card, and if so how much that adds to my processing
bill?

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analog31
As I understand it, something like the first 8 digits of your card number
encode information about what kind of card you have. It allows the merchant to
tailor how much you pay, to the type of card. It could take a couple of forms:

1\. A surcharge for certain kinds of cards.

2\. A discount for certain kinds of cards.

In either case, I think this is just a logical step in a progression that
makes it so that a merchant can recover a portion of their credit card fees
from the consumer. Good or bad? It might create an opportunity for competition
among credit card processors to offer their services for the lowest possible
fee.

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terminus
More details: [http://www.bloomberg.com/news/2013-12-13/visa-mastercard-
swi...](http://www.bloomberg.com/news/2013-12-13/visa-mastercard-swipe-fee-
accord-approved-by-u-s-judge.html)

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nfriedly
Finally! I've felt for a while now that rewards cards are basically a
legalized form of bribery and I've avoided using them at merchants that I
like.

