Judge Approves Interchange Fee Settlement with Visa, MasterCard

http://www.paymentsnews.com/2013/12/judge-gleeson-approves-interchange-fee-settlement-with-visa-mastercard.html

by jaybna • 13 years ago

20 44 13 years ago

ggchappell• 13 years ago

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).

jeromeparadis• 13 years ago

It's rather the sign of an abusive HN-specific editorial title. The op read the article way deeper than between the lines.

mililani• 13 years ago

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.

gaadd332• 13 years ago

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.

gergles2• 13 years ago

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.

jacknews3• 13 years ago

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.

darkxanthos• 13 years ago

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.

jacknews3• 13 years ago

Of course, but then they are turning away custom.

Why shouldn't they be allowed to charge customers different prices depending on which payment method they use, given different methods have different costs to them.

Now they can.

dminor• 13 years ago

It was part of the merchant services agreement - e.g. if you want to accept Visa, you have to accept all Visa.

mgkimsal5• 13 years ago

As dminor said, it was part of the agreement, but more to the point, you don't always necessarily know when you're taking the card. You'd only see the fee after running the purchase. IIRC, there was some way to decipher some 'types' of cards (airmiles reward card vs free gas vs cash back cards, etc) by some of the prefix numbers, but I don't think that was reliable, nor feasible. It's been a couple years since I discussed this with my bank's merchant account person, but in a nutshell it was "you don't now until after you take the card how much it'll cost you".

There was a base fee, and most cards would fall in to that - 2.1% in my case, IIRC. But, if someone used some 'get 2% cash back on all purchases!' card, I'd be charged 4.1% (again, IIRC, might have been a bit more or less). When you don't know what the price is going to be, you end up needing to err on the high side, and factor in higher overall fees to every price, raising the price for everyone along the way. And the banks make more money because the whole 'free air miles!!!!' mentality gets people to use their card more.

The banks get their fees on a per transaction cost (and interest on balances that carry on month to month) - the merchants effectively paid for all your 'free air miles'.

tikhonj2• 13 years ago

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.

amputect• 13 years ago

Yeah the difference between the headline's implication and the content of the actual article is really jarring. This is objectively a good decision.

rschmitty2• 13 years ago

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.

While they may not have been "free" in the strictest sense in the laws of economy, miles and cash back are a big part of savvy shoppers. I'm still shocked when I find out someone using a traditional credit card with no rewards, or worse, their debit card.

When we got to this point I don't know, perhaps I wasn't young enough, but you would be fiscally foolish not to take "advantage" of them while you can.

mgkimsal5• 13 years ago

The entirety of these 'reward' programs was to get you to use your cards more, and secondarily spend more. Spending extra hundreds per year to get a free flight now and then generally isn't 'savvy'. You think you're getting something back, but you're contributing to the problem, and giving cover to the whole 'increased consumerism' lifestyle.

Thinking to yourself "sure, I'll spend a few extra bucks - I'll be getting 2% cash back next month/year!" or "hey - I almost have a free flight - sure, buy a bit more!"... encourages spending more than you need.

I know there are people that do extreme gaming of the system, paying utilities and such with every rewards card out there, transferring balances and such to get a free flight. These are the outliers, much like extreme couponers spending days per week figuring out how to get $200 in groceries for -$18. It's not reality for most people.

It's far easier to not spend on frivolous stuff, save up, and buy a plane ticket when you want it vs buying extra crap then trying to figure out which 10% of the days you can use your 'free miles' on. My wife's got 150,000 miles with an airline, and they have no 'air mile' seats available on any flight she needs for the next 12 months - it'll be 2015 at least before she can use all these 'free flight' miles (earned from travel, not from rewards cards).

jacknews3• 13 years ago

Of course, if you muddy the waters (complex reward schemes vs simple cash prices), you create an environment which a few "savvy operators" can exploit.

At the expense of the majority.

But what you're missing is that the guaranteed winners are the ones doing the muddying, and at everyone's expense.

tikhonj2• 13 years ago

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.

gorhill• 13 years ago

"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.

dwaltrip• 13 years ago

Can you please elaborate on why you think this way?

pravda• 13 years ago

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.

Well, no. Interchange fees come out of retailer profits. That's why retailers care about them.

graeme2• 13 years ago

Retailers on average increase prices to account for these fees.

lukeqsee• 13 years ago

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?

gergles2• 13 years ago

Debit cards are exempt and cannot be surcharged.

bsimpson• 13 years ago

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.

graeme2• 13 years ago

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.

jcampbell12• 13 years ago

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.

eli• 13 years ago

I'm pretty sure it's possible to get the fee before running a charge. You definitely get it back in the response.

rahimnathwani3• 13 years ago

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?

jcampbell12• 13 years ago

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-...

tzs• 13 years ago

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?

analog31• 13 years ago

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.

nfriedly• 13 years ago

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.

scottfr• 13 years ago

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• 13 years ago

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.

terminus• 13 years ago

More details: http://www.bloomberg.com/news/2013-12-13/visa-mastercard-swi...

Judge Approves Interchange Fee Settlement with Visa, MasterCard

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