We told you back in July about the Credit Card Fair Fee Act of 2009. To summarize: Visa and Mastercard skims a percentage of the retail price every time you use a card to buy something. It’s called an “interchange fee”. Allegedly, U.S. merchants pay up to six times more for this service than merchants in other countries, and are unable to negotiate fees.
Generally, this sort of scenario is called a monopoly, but so far the arguments I’ve seen for and against have avoided that word, probably because Visa and Mastercard are different companies. Duopoly, maybe?
Anyway, lawmakers asked the Government Accountability Office to review the options on the table, namely:
- setting or limiting interchange fees
- requiring their disclosure to consumers
- granting antitrust waivers to allow merchants and issuers to voluntarily negotiate rates
prohibiting card networks from imposing rules on merchants that limit their ability to steer customers away from higher-cost cards; and
The GAO concluded:
If these measures were adopted here, merchants would benefit from lower interchange fees. Consumers would also benefit if merchants reduced prices for goods and services, but identifying such savings would be difficult.
Difficult, but not impossible. The merchant groups argue that if the interchange fees could be reduced, the prices of everything in the store could be reduced. But at the same time, they also argue that high interchange fees are squeezing them out of any available profit margins and forcing them out of business. And if the profits are non-existent, they won’t be reducing prices.
Interchange fees resulted in $48 billion dollars in revenue last year, through what I suspect are mostly automated processes.
Credit Cards: Rising Interchange Fees Have Increased Costs for Merchants, but Options for Reducing Fees Pose Challenges, U.S. Government Accountability Office, 19 November 2009