http://money.cnn.com/2005/06/23/news/econo...dex.htm?cnn=yes

Businesses to Visa: "No more fees"

WSJ: Merchants call transaction fees charged by banks, Visa, MasterCard price-fixing and collusion.
June 23, 2005: 8:00 AM EDT


NEW YORK (CNN/Money) - Merchants are calling into question the more-than-$20 billion in transaction fees a year charged by credit card companies, alleging that the practice amounts to price-fixing, collusion and conspiracy, a newspaper report said Thursday.

In an expanding credit card fight, more stores are accusing banks of working with Visa and MasterCard to illegally fix prices, the Wall Street Journal said, adding that some stores have already won large, undisclosed settlements.

"These fees amount to at least a $20 billion annual tax on merchants and the economy, raising prices for consumers on almost any product they buy," Craig Wildfang, a lawyer in a recently filed lawsuit against "interchange fees," told the Journal.

Merchants have long complained about the high fees, but the issue flared following a recent round of fee increases by Visa and MasterCard, the paper said.

Wal-Mart has won concessions valued at more than $1 billion over the fees; and Best Buy, Toys "R" Us, Home Depot and CVS are negotiating or have already won fee cuts, according to the report.

Visa and MasterCard have defended the fee increases, levied mostly on premium cards, saying that they are an essential component of a global system that has provided benefits to consumers and merchants, while covering fraud risks and the cost of float.

"Interchange is highly beneficial, efficient and procompetitive," Noah Hanft, MasterCard's general counsel, was quoted by the Journal as saying.

The growing number of lawsuits against Visa, MasterCard and banks could prove more costly than the $3 billion settlement merchants won in a legal battle last year over debit-card fees, the Journal quoted analysts as saying.

The stakes are especially high for large banks with big credit-card operations such as Chase, Bank of America and Citi, since interchange fees represent as much as 15 percent of their annual revenue, the report said.

LMAO! Looks like they've been listening to adult industry spin masters with that line!

I was writing an article on chargebacks a few months ago and it got stalled. Somewhere I have stats about how much money gets pushed through VISA globally in a minute. It's astounding.

The other stat laying around someplace is the amount of fraud they compute they get. You'd be astounded at that figure too. It's lower than anyone would imagine.

15%...that seems pretty high. I could understand an annual revenue of 4 to 6%. :o

Interchange is a sword that cuts both ways -- something this industry might want to keep in mind.

Both issuing and acquiring banks pay into Interchange. Let's say the charge is roughly a quarter USD per transaction.

So on a $1 transaction, the issuing bank pays and the acquiring bank pays. No one makes any money on it, the issuing bank actually loses money, since the customer would basically have to default on his credit card bill, not pay the balance for a number of years, and then pay it in full including interest accrued in order to come up with 25 cents in fees on a 1 dollar transaction.

Acquiring has always been a sticky issue in high risk transactions. Issuing banks aren't stupid and when their profits are down, they begin to look at ways to reduce costs and create profits that they overlooked during boom times. It's always possible for issuing banks to refuse to take transactions from certain BINs or MCC codes, and while I think the rules of Visa and Mastercard both prohibit the declining of sales based on dollar amounts that are too low (too high can be declined on a fraud scoring basis), we should all probably remember that Visa and Mastercard are simply associations, controlled by the same banks that are issuing and acquiring card data for processing.