mia

Permitted is the opposite of mandated. No merchant is required to add one. The legal process is a negotiated settlement, nothing was imposed by the government.

In the USA MasterCard and VISA operated illegally for two decades to restrict competition. They prohibited their member banks from issuing cards on other networks, but made reciprocal exceptions for one another. They imposed contracts which prevented merchants from passing on their costs to customers. They increased their market share of debit transactions by increasing transactions fees.

MasterCard and VISA are learning to compete with each other. They no longer have interlocking ownership. They have paid American Express and Discover billions in anti-trust damages. The government did intervene in the debit card market. Now, they have agreed to compensate merchants, and to allow merchants to pass through the cost of their services to consumers. For the first time the market will be able to decide the value of their service.

chelmkamp

Mandated to be permitted, per terms of the settlement. This is not the market solution, negotiated or not. The market solution is merchants deciding en bloc not to enter into contractual agreements they don't like, thus forcing a change in the terms of the agreement.

I agree Visa and MC (and Amex too) are guilty of anticompetitive practices in the past. That is a separate issue that has been addressed (if not completely) in many jurisdictions around the world. There needs to be more competition, with more options for both consumer and merchant. Allowing merchants to further hide the true price of goods and services is not the remedy to that problem.

Perhaps I'm coming off as too pro-Visa/MC. I'm not. I think their complicated pricing schemes and bulk rates for larger retailers is awful, especially for SMEs. I just don't think one set of anticompetitive practices should be replaced with another.

So what's the solution? Introducing competition through innovation in payment methods -- including mobile phone-based payment systems -- to challenge the big guys and push down their cost to the merchant and the consumer. That's the win-win (except for the big networks).

mia

This is exactly what just occurred. The merchants demanded the right to add surcharges and the networks agreed.

chelmkamp

Some merchants with the wherewithal to file suit used the threat of long and complicated court proceedings to force the networks to agree to change the terms of their agreement. Not the same thing.

This was never about the little guy no matter how much folks want to make it sound like it's about the little guy (the poor little barber in the example someone gave above). This is the same old "lawyering up" of giants using the courts instead of markets and competition to increase profit margins. It has pretty much become the SOP now for getting ahead in business across most industries.

Aus_Mal

Retailers will be greedy and implement surcharges. Just look at the Australian experience - Just about every man and his dog now charges 1.5-3% for credit card usage. The worst offenders are hotels, car rental, airlines, utility providers, restaurants and small shops.

In fact the scheme has failed so badly the Govt is trying to tighten up the rule.

mia

Agreed. This is mass market retailers taking on mass market card issuers, but the motives don't matter. I expect large retailers will use this leverage to negotiate lower transactions fees, while many small retailers will impose surcharges.

JEFFJAGUAR

That most likely will be the ultimate result, I agree with you 100%

cruiser9999

I would NEVER use a debit card as there is unlimited liability on it and the liability falls onto the owner of the card; a credit card by comparison has a $50 liability on it for fraudulent use. Some years ago I withdrew money from a US Bank ATM using a Canadian debit card. There was an electronic blip and my account ended up being debited twice though I only used the card once, had one withdrawal, etc. It took 8 MONTHS! and me threatening legal action before I got my money back. Luckily it was only $500 but can you imagine if it was a larger amount or if I had been less persistent? In my case each side blamed the other and neither would budge.

AA_EXP09

For Canadian debit if I need to withdraw money in the US I just ask for cb at any store.
They see it is a debit and they allow it.
Sometimes, I've been able to do it with a CC that they think is a debit card as well.

cbn42

If there were dozens of credit card networks, that would be the perfect solution. However, there are 2 major networks and 2 smaller competitors. Hundreds of thousands of merchants are trying to negotiate agreements with those 4 companies. It is a lopsided situation that the "market" cannot fix without intervention.

That is why we have antitrust laws. If you have monopoly-level market share, you are not allowed to do certain things that would be legal in a more competitive market.


You are confusing a debit card with an ATM card. If you use a Visa/MC debit card with a signature, your legal protections are much better than if you use a PIN through the Maestro or Interlink networks. The fact that Canada is a separate country with separate laws may also have changed the liability issues.

redtop43

Something that has always disappointed me is the absence of any true experts on FT. We talk extensively about topics like credit scoring, motivation behind rewards programs, and now interchange fees, yet of the tens of thousands (do I have the number right?) of FTers, we never seem to have anyone with actual knowledge. No one who has worked for Fair-Isaacs (or in the predictive modeling department of an auto insurance company), in the rewards department of a major card issuer, or now, in the processing department of a major or even minor retailer. We must have some people with knowledge like that.

One thing that seems to me will drive the evolution of fees is the spread of fees. I had heard once that rewards cards charge a higher interchange fee, and that seems only sensible. But how much different is it? Is it enough to cause retailers to surcharge rewards cards more than non-rewards?

I don't think people will revert to cash or checks. Debit cards are just as convenient as those. Personally, I use cash only in two instances: (a) at the local bridge club, which does not take credit cards, and (b) in vending machines. I have no cash flow issues that would force me to use a credit card, although there is a peace-of-mind factor in knowing toward the end of the month that I don't have to worry about overdrawing my account.

As far as Visa and MC, I feel no sympathy. They knew what they were doing, they knew it was an anti-trust violation, they just hoped to get away with it.

cbn42

Here are the interchange rates from Visa: http://usa.visa.com/download/merchan...s-june2012.pdf

To take an example, for a CPS/Supermarket Credit—Performance
Threshold I, the interchange fee is 2.1% for Signature Preferred, 1.65% for Signature, and 1.15% for traditional rewards.

This may be significant for merchants, but in my opinion it would be too complicated and lead to resentment as many people don't know what kind of card they have or what the differences are.

MasterCard has a similar table on their website.

rasheed

It depends on the merchant type (how they are categorized and what type of reward card).

Here are links to their interchange fees for US Merchants (this is before the new settlement that is):
http://usa.visa.com/merchants/operat...nge_rates.html (Visa)
http://www.mastercard.us/merchants/s...nge-rates.html (MasterCard)
http://www.discovernetwork.com/home/...ingVerify.html (Discover - not public)
Could not find the AmEx version.

CAVEAT: Merchant processors may/do charge additional fees on top of the interchange rate for their efforts/equipment/etc. We will assume that amount does not vary depending on the card type (this can be called interchange + fee pricing for merchants).

Let's take a few examples:

$100 grocery charge (card present MCC: 5411)
$50 gas fuel (card present - at pump MCC:5541/5542)
$100 smaller online merchant (card not present - online)
$1000 airline ticket (card not present - online MCC: 3000-3299/4511 )

Card types I'll list:

MC0 - "Debit, PIN not used" - most bank debit cards, prepaid is not here
MC1 - "Enhanced Value Cards"- reward cards up to Platinum
MC2 - "World High Value" - best benefits/rewards cards in World
MC3 - "World Elite" - card says World Elite on it
VS0 - "Debit, PIN not used" - most visa check cards, not prepaid
VS1 - "Traditional Rewards" - reward cards up to Platinum
VS2 - "Visa Signature" - excludes the top Signature cards
VS3 - "Visa Signature Preferred" - the best benefit/rewards cards on Visa

No business, purchasing, or corporate cards here, they have a separate schedule. Assumes consumer card issued in US. Foreign MC/VS cards used in US have different schedule.

Apologies for mistakes in calculations in advance.

$100 grocery charge (Supermarket NOT warehouse groceries or fuel)
MC0 - $0.35/$0.35/$0.35/$0.35 (<$750m/<$2B/<$6B/>$6B in MC volume)
MC1 - $1.58/$1.27/$1.20/$1.12 (<$750m/<$2B/<$6B/>$6B in MC volume)
MC2 - $2.00/$1.37/$1.30/$1.12 (<$750m/<$2B/<$6B/>$6B in MC volume)
MC3 - $2.00/$1.37/$1.30/$1.12 (<$750m/<$2B/<$6B/>$6B in MC volume)
VS0 - $.26 or $.30
VS1 - $1.75/$1.27/$1.25/$1.20 (<$420m/<$1.5B/<$3B />$3B in VS volume)
VS2 - $1.75/$1.75/$1.75/$1.75 (<$420m/<$1.5B/<$3B />$3B in VS volume)
VS3 - $2.20/$2.20/$2.20/$2.20 (<$420m/<$1.5B/<$3B />$3B in VS volume)

MC Debit with PIN can be even less at $.18 or .23 depending on volume.

$50 gas fuel
MC0 - $.52 (0.70% + $.17, $.95 max) Petroleum
MC1 - $.95 (1.90%, $.95 max) Petroleum
MC2 - $.95 (2.00%, $.95 max) Petroleum
MC3 - $.95 (2.00%, $.95 max) Petroleum
VS0 - $.55 or $.24 AFD Debit
VS1 - $.82 (1.15% + $.25, $.1.10 max) AFD
VS2 - $.82 (1.15% + $.25, $.1.10 max) AFD
VS3 - $.82 (1.15% + $.25, $.1.10 max) AFD

Visa and MC are playing a bit of a game since they know the actual average transaction size for fuel pump.

$100 smaller online merchant, no Issuer authentication
MC0 - $1.20 (1.05% + $.15) Merchant UCAF
MC1 - $1.83 (1.73% + $.10) Merchant UCAF
MC2 - $2.30 (2.20% + $.10) Merchant UCAF
MC3 - $2.30 (2.20% + $.10) Merchant UCAF
VS0 - $1.80 (1.65% + $.15) e-Commerce Basic
VS1 - $2.05 (1.95% + $.10) e-Commerce Basic
VS2 - $2.05 (1.95% + $.10) e-Commerce Basic
VS3 - $2.50 (2.40% + $.10) e-Commerce Basic

$1000 airline ticket
MC0 - $16.15 (1.60% + $.15) Passenger Transport
MC1 - $19.10 (1.90% + $.10) Passenger Transport
MC2 - $23.10 (2.30% + $.10) Passenger Transport
MC3 - $23.10 (2.30% + $.10) Airline
VS0 - $17.15 (1.70% + $.15) Passenger Transport, card not present
VS1 - $19.60 (1.95% + $.10) Passenger Transport
VS2 - $23.10 (2.30% + $.10) Passenger Transport
VS3 - $24.10 (2.40% + $.10) Passenger Transport

So, adding a bit more for the merchant processor costs, you can start to get a picture of the types of amounts that a merchant could pass along to you if allowed.

Rasheed

travelpye

I can confirm that both Quay Grand Suites (Sydney) and Marriott Circular Quay (Sydney) charged me the surcharge for cc.

travelpye

After reading your post, I looked for the segment.

http://www.wxyz.com/dpp/money/consum...e1342633283949

"A Kroger spokesman, Keith Dailey, confirms that the chain is looking into this, but says it would not happen until early next year. He also said customers should look at it as a "discount" for cash or debit card customers, not a surcharge."

Kroger is the largest grocery chain in US.