Was the Merchant Plight Ignored in the 2009 Credit Card Act?
In May when the Credit Card Accountability Responsibility and Disclosure Act of 2009 was signed into law some folks were disappointed by the Act's lack of attention to the subject of interchange. Senator Dodd, one of the bill's creators noted that the issue of interchange is convoluted and would have sunk the bill - and we agree - one step at a time.
Originally the bill had several provisions that would have supposedly provided some interchange fee relief to merchants such as allowing merchants to offer discounts for cash, check or debit card purchases (this provision was excluded from the act).
What the Act did include was a requirement that the GAO (Government Accounting Office) conduct an in depth study of interchange - due this fall. A number of analysts seem to agree - eventually government will get involved in regulating interchange, something merchants have been pushing for for some time.
Bruce Cundiff - a research director at Javelin Strategy & Research Inc goes further than Dodd and notes that not only is interchange a complex system but that upsetting the balance could have unintended negative consequences for all players - including card issuers, merchants and consumers. Michelle Singletary of the Washington Post put together a thoughtful article on the privilege of paying with plastic and we at XBS agree with her reservations, that at this stage of the game our customers will forgo the convenience of paying with cards - doubtful.
A study will be a good thing of course. Interestingly enough the GAO did a study last year that touted the benefits the federal government had experienced by accepting cards at various government agencies (fewer bad checks, reduced theft). The study also noted that other countries who had successfully capped interchange fees did not necessarily show that the savings were passed along to the consumer by merchants as is often alluded to.
So what gives? Is interchange fair? I've got free checking for both my business and personal checking account so you do have to wonder - how are issuing banks meant to make money? are they allowed to make money? who decides how much is too much? Why are interchange and processing costs not considered a fair cost of doing business - much like utilities, rent, payroll, marketing and advertising? It's confusing.
We are surprised to read that interchange fees are still referred to as hidden fees by the Merchants Payments Coalition since both VISA and MasterCard now publish these fees on their sites. Do consumers REALLY want to know? We have merchants who don't even want to know!
XBS still recommends the merchants best option for fair costs in payment processing is interchange cost plus pricing while the brouhaha continues. Remember, this pricing method gives the merchant price transparency (merchant is given the wholesale cost of the transaction) which is a pretty nice feature. I can't think of anything I buy, anywhere from anyone - that provides me this advantage.
We'll take a look at some of the proposed legislation in the upcoming months - and how it may or may not benefit those involved - which is all of us. In the meantime, please contact us for a no cost evaluation of your processing statement and an explanation of how our pricing recommendations can benefit your company.