Feb
25
2010
Merchant Credit Card Reform
Author: PaulUPDATE (3-1-10): The day I uploaded this post Barney Frank Chairman of the House Financial Services Committee announced that they will not pursue interchange reform legislation in 2010. I guess we’ll have to wait another year…or ten.
Now that the new credit card legislation has gone into effect for consumers, I’m wondering when retailers are going to get a break. Anyone that has had the misfortune of having to deal with a merchant services account knows that there is a lot of room for improvement if one looks at it from the cheery side, and down right monopolistic thievery if you see it more skeptically.
What does credit card reform have to do with sustainability? It really comes down to local commerce and really just sustaining an open business… 3% going to VISA and MasterCard is 3% lost from a local economy, and lost from businesses in an industry where 3% is the profit for the year. I’m sure it benefits a local economy somewhere, but not the majority. The new laws have made a lot of positive changes for credit card users, but I fear the new reforms that the credit card companies claim are going to cost them millions will just wind up on the bills of restaurants and retailers.
Similar reforms could benefit retailers as well. Clarity and communication are big pieces of the new standards, and if there is anything out there that could use some clarity it’s a merchant statement. I’ve seen some pretty good statements. Heartland Payment Systems does a decent job of producing a straightforward statement that you can understand with a little help, but I’ve also come across statements that the company’s own sales reps couldn’t understand, nor could their bosses. This should be step one. A statement that the people working for the processing company can understand. It seems so simple…
Fees are the other big part of the new reforms. Fees are what kill you with a merchant statement. Discount fees, transactions fees, international transaction fees, half cent fees, “oh that’s just a standard VISA, MasterCard fee” fees, the “oh I didn’t tell you about the .0945 cents per transaction fee” fee, and on and on as creative as they can be. The fees for merchant services should be clear, stated boldly in the contract and simple enough to calculate without an algorithm.
Finally, (actually I’m sure there are about a hundred more things – share your thought) there should be transparency in how they calculate the interchange rates. Currently the supposed competitors VISA and MasterCard independently come up with the same fees every April and October behind close doors. You as a merchant cannot find out how or why they calculate those fees or how they are apply them to your bill. Its just magic – they somehow come up with basically the same rates and noone needs to know how or why. Now keep on swiping those cards…
I’m sure we’ll see how the new reforms treat the business community soon enough, April is just around the corner.
Check out Unfaircreditcardfees.com for information on interchange reforms.
Tags: credit cards, local economies
February 26th, 2010 at 7:28 am
As a result of the CARD Act reforms that went into effect on February 22, credit card companies are projected to incur $12 billion in annual losses. But we all know that credit card companies are far too imaginative to let this happen. The reforms require the credit card companies to give you 45 days notice before rate increases, and those increases cannot be applied to existing debt unless you miss payments for 60 days. In addition, there have been new restrictions placed on how they can market to college students under 21 years old. This all translates to nothing more than a bump in the road for card companies. Old methods of revenue generation will be replace by new ones in the form of lots of fee
February 28th, 2010 at 9:25 am
Paul, I agree with you on many of your points. Mandating full disclosure, transparency and month-to-month merchant agreements with no early termination fees would benefit merchants. However a few merchant service providers are out there doing this now but business owners still choose merchant accounts without doing any research or reading the fine print of the contracts they sign.
I believe more thought needs to go into your premise that 3% going to Visa and MasterCard is 3% lost from a local economy or business. Local businesses and the local economy benefit greatly by the expansion of credit and efficiencies that payment cards deliver. Go back 50 years when merchants were extending their own store credit and compare the costs. What lift in sales can businesses attribute to accepting card payments? What would the impact be to the local economy if there were fewer payment cards in the marketplace?
Last, I am concerned about government intervention. I have zero confidence that the politicians can come up with a better solution than the market. Because there is money to be made, there are lots of innovative companies developing new payment technologies and more secure systems that are attracting venture capital within the payments space. Now is not the time to overly regulate as this tends to benefit the incumbents and stifle innovation. I am also skeptical that the small businesses will out negotiate huge national chains or community banks will out negotiate to big to fail banks when the lobbyist and politicians get together in the back room.
There are steps that small businesses, family owned restaurants, local retailers and service providers can take to help themselves without waiting on the government.
Immediately switch to an Interchange pass-through pricing plan. Effective October 2010, Visa will extend Small Ticket Interchange to most merchants. This is an effective reduction in the overall Interchange costs for most merchants. However, few merchants will benefit since there is no difference between a transaction over or under $15 in their current merchant account contract. In fact this is just one example. Most merchants are not getting the benefit of all the incentives Interchange rates available including credit voucher Interchange. Bundled, blended, “rate as low as” pricing structures, where merchants pay non-qualified surcharges, are unable to realize lower costs on transactions that meet the specified criteria for certain Interchange categories.
Conduct a Google search using keywords “merchant Interchange rate quote” or … consider the tips on how to lower your real rate to accept card payments … and benchmark your card acceptance costs with other businesses of your same size and in your same industry. A little study will go a long way.