By sean

The pace of articles relating to credit card fees is accelerating at a rapid pace due to the credit card legislation going through congress.  In fact, there are so many articles flying around that it is hard to keep up.  So, what does that mean for TransFS and for you?  It means that we should be filtering the myriad articles out there down to the top handful in order to help you, our valued customers and other small business owners (hopefully soon to be customers), get the skinny on what is happening in the credit card world.

In the last week we found one article that does a great job of summing up some of the key points in the current debate on interchange fees.  The article by “Trader Mark” on SeekingAlpha.com puts forth some very interesting merchant-side credit card processing facts that have come to light recently due to the battle in congress around consumer credit card fees. Here are a couple of the more interesting tidbits Mark mentions in his post:

• Visa Inc., MasterCard Inc. and JPMorgan Chase & Co., already squeezed by new U.S. curbs on how credit cards are marketed to consumers, are girding for a renewed battle over $48 billion in fees levied on merchants.
• Lawmakers are promising new rules to bring down the interchange fee, a charge on purchases sometimes topping 3 percent that’s split by the two banks serving the customer and merchant.
• Supporters of the legislation include the biggest retail chains, restaurants and small businesses, which say the fees erode profit and inflate prices.
• The debate pits the largest card lenders including JPMorgan and the two biggest payment networks, Visa and MasterCard, against Wal-Mart Stores Inc. and Target Corp. Interchange is the second-biggest cost after payroll, Target said, and merchants want to negotiate lower payments collectively without running afoul of antitrust law. (remarkable statistic)
• The Credit Card Fair Fee Act would let merchants bargain together on interchange rates and designates the Department of Justice as arbiter. Card networks and lenders would be forced to disclose components of the fee and how banks share the money.
• In a typical transaction, the retailer’s bank deducts 1.9 percent from proceeds of the purchase, a sum known as the merchant discount rate. The largest portion — the interchange fee — goes to the bank that issued the card. The bank for the merchant keeps what’s left. Interchange fees average 1.7 percent of the purchase, according to JPMorgan analyst Tien-tsin Huang.
• Visa and MasterCard get paid a processing fee from each bank of 15 to 18 cents on a $100 purchase, Huang said in a June 5 report. MasterCard and Visa process about 58 billion transactions annually, company filings show.
• Visa Europe Ltd. faces an antitrust complaint from EuroCommerce Inc., a retailer group that said this month that stores should be able to negotiate fees. MasterCard settled in April with European Commission antitrust regulators by reducing credit card interchange to 0.30 percent.
• JPMorgan, Bank of America Corp. and Citigroup Inc., last year’s biggest bank card lenders, don’t detail interchange revenue. (i.e. they are not transparent)
• “In every other aspect, merchants have the ability to negotiate and reduce their costs except this one,” said Jennifer Hatcher, spokeswoman for the Arlington, Virginia-based institute. Target lacks leverage because it’s “simply not realistic” to stop accepting cards, said Eric Hausman, a spokesman for Minneapolis-based Target

As we already know, Mastercard and Visa are not entirely forthcoming with their fee structures and it is next to impossible to negotiate the interchange fee due to the market dominance of just two firms (i.e. this isn’t really a free market since there is virtually no competition). If Target has trouble negotiating their rates then the rest of us don’t have a chance.

For now we will have to wait and see where this goes.  In the meantime, we at TransFS can help business owners lower their credit card processing fees through our reverse auction system where credit card processors compete for your business. Check it out if you want to save on your credit card processing fees and let us know what you think.

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