Archive for the ‘Legislation’ Category

Effects of Banking Reform on Merchant Account Fees

Friday, January 22nd, 2010

How could President Obama’s banking reform initiative possibly end up affecting merchant account fees? Buried in a New York Times article about the likelihood that free checking accounts will cease to be a common offering – Free Checking Could Go the Way of Free Toasters, Ron Lieber mentions this:

Well, remember our old friend the debit card, which upended the industry a decade or so ago? Banks don’t just get overdraft revenue. They also get a cut of the fees merchants pay when someone uses a debit card, and banks generally get a bigger cut if cardholders sign for their purchase instead of using their PINs.

You see where this is heading, right? If banks can get enough people to use their debit cards and sign for their purchases often enough, it will go a long way toward keeping checking free and even subsidizing better interest rates or rewards. (It may also cause merchants to raise prices to cover those card fees, alas.)

We would agree that those increased merchant fees being passed along to customers is not only very likely, but almost guaranteed. With the increased consumer incentive toward using rewards cards that cost merchants more in processing fees, now’s as good a time as any to stop on over and fill out a simple form to start saving on credit card processing fees.

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The Damage of Card Rewards

Saturday, January 9th, 2010

The New York Times looks at some of the social and economic implications of the trend towards using credit cards with reward programs.

On the social implications:

After all, the 1 to 3 percent or more of every transaction that merchants pay to accept the cards is a significant cost, and the small local retailers that make neighborhoods vibrant often pay a higher percentage.

Stores then build those fees into higher prices, so people who aren’t earning any rewards can end up subsidizing those who do. Many of these people have no credit cards because they’re financially troubled.

So the risk is that we perpetuate a sort of reverse Robin Hood problem, as Prof. Steven Semeraro of Thomas Jefferson School of Law in San Diego puts it. It’s possible that the poor pay subsidies to finance the rewards of the affluent.

And of course, as many merchants know, while the simple act of accepting credit cards tends to lead to higher sales (both per-transaction and gross), the costs of accepting credit cards have been increasing dramatically over the past few years.

Here’s one finding: Rewards-earning credit cards with the Visa and MasterCard logo often cost merchants more than plain-vanilla ones, which hints at the card companies’ laserlike focus on subsidizing rewards for the affluent customers who are still spending, even if they are paying their bills off each month and thus paying no interest.

But cards undoubtedly also benefit retailers. People can use credit to spend more than they have in the bank at the moment, and some may spend more on a card than they would if they had to lay out a pile of money. Merchants who handle less cash, meanwhile, bear fewer costs for counting it, calling the armored car, and theft by employees or armed bandits.

As for the cost to consumers of all the card use, the National Retail Federation figures that the so-called interchange fees that their members pay to accept Visa and MasterCard alone cost an average of $427 an American household in 2008. Add in other fees the stores pay, plus costs for American Express and Discover, and that number could approach $600.

Head on over to the nytimes website and read the full article.

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Posted in Credit Card Processing, Fees, Legislation, Psychology | 1 Comment »