Interchange Fees - Will Banks Enjoy a Reprieve Amid the Chaos?

And by chaos you know what I mean - the financial debacle in the US, right now.  The Dow's up -but for how long? Lending is non-existent, bankers are still drawing some ah, unusual salaries and bonuses and now Barney Frank of the House Financial Services Committee says the issue of interchange fees is not on the 2010 agenda.

Arggghhhh.  That's for my merchant friends.  I can tell by the way they hang up when we call them to market our electronic payment services that they are confused about what we do....we don't make money on interchange.  We do collect interchange fees for card issuing banks for each credit or debit card transaction run by our merchants.  We PROCESS the transaction.  Whew!  just wanted to clarify... again. 

If you're still confused about interchange revisit our blog on the issue -you're certainly not alone. 

What is of concern is the rising cost of these fees - set by VISA and MasterCard and paid to the banks that issue their branded cards - for the merchants that pay them.  Merchants and advocacy groups have been pushing for years for interchange fee regulation and caps - claiming the fees force them to raise the costs of their goods and services to the consumer.  Maybe.

Unfortunately the issue is complex.  Will the regulation of fees really mean a cost reduction on the consumer end of things?  A November 2009 article in the New York Times examines the outcome of just such an act when the Australian government stepped up in 2003, cutting merchant fees in half.  The results have been predictable - tough to sort through. 

While merchants are paying less - it would seem sometimes the consumer is paying more - with less available credit, fewer or shrunken rewards programs (no!), higher annual credit card fees, and shorter time periods before the accumulation of interest on balances.

More bizarre is the unexpected surcharges by Australian retailers and merchants to the consumer that uses a credit card (not allowed currently by the card networks but with deregulation....) - and this after their own costs have been lowered.  Not only are some merchants covering costs with the surcharges, some are making a profit. Now that's a fine how do you do! 

Yes, US banks make billions from interchange fees.  They have lobbied hard against government intervention and claim that the consumer will experience rising costs with credit card use and fewer benefits should the fees be capped or regulated. Again, maybe.

Of course last year keep in mind - a new trend developed that will no doubt ooze into 2010, maybe even beyond - record losses.  In yet another NY Times article last year, Banks Brace for Credit Card Write Offs, authors Dash and Martin tout estimates of between 82.4 to 186 billion in overall losses for card issuing banks, as the US continues to shed jobs and with that, the ability of Americans to pay their credit card bills.

What to believe? What to do?

Only that at the very least, for 2010 anyway - interchange fees will remain intact - plan on it.  Merchants should be aware of costs and educate themselves on how to implement cost saving processing methods.  The credit card processing industry seems hell bent on ever increasing complexity. 

To do this, you need an electronic payments professional you can count on, not entry level sales staff.  That's just the way it is.  ASK your provider...how long have you been in this industry? Review your methods and pricing, secure a professional relationship and focus on what you do best - you're own products and services.

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