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Consumers Urge Congress To ‘Stop Unfair Credit Card Swipe Fees’!!!!!!

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frank22 and bostonte, I agree with your points. I have no problem with MC/Visa making money, but I have a huge problem with the fact that merchants have no negotiating power with MC/Visa. The merchant agreement is usually with a merchant processor and a member bank (of MC/Visa), but the merchant is BOUND by the rules of MC/Visa on a unilateral basis. When MC/Visa create new or increase interchange fees, surcharges and assessments, the merchant must pay for these increases/fees even though MC/Visa are not direct parties to the merchant agreement.

 

At least with American Express and Discover, the merchant negotiates fees directly and can get better fees based on sales volume. With MC/Visa, a merchant that generates $100 million in sales volume pays the same surcharges and assessments as a merchant that generates $1,000 in sales for the same types of rewards/corporate cards presented by a customer.

 

A business to business transaction for $1 million typically costs a large company (to receive payment) $0.02 via ACH, $2 via wire transfer and ~$28,000 via corporate Visa.

 

I do not want regulations on fees. Instead, I would like for MC/Visa to be required to sign acceptance/fee agreements with merchants that are separate from the merchant processing agreement.

I can see that as a solution...however...would you want to pay the increased fees that would likely be a consequence of increasing the cost to Visa/MC? Sure, you may be able to negotiate a lower fee than a mom and pop shop could if you're a large company....but chances are it would still be higher, since Visa/MC would have higher expenses involved...

pryan67, that is a risk I would be willing to take. At least MC/Visa would be a party to the agreement and there would be a negotiation. :rofl:

 

In April/October of each year, MC/Visa introduce new and change interchange fees, non-qualified surcharges and assessments without being a direct party to the agreement. In my opinion, these merchant fees should be to pay for the transaction risk (fraud, chargebacks and returns) taken by MC/Visa and the card issuer. Instead the fees have morphed into a way to pay for rewards programs, cash rebates and in some cases offset cardholder repayment risk.

 

Years ago, there were about 30 or so interchange rates. Now there are more than 200 interchange rates. It is like playing whack a mole. The merchant negotiates a good set of rates and then wham, a new interchange or surcharge pops up that was not part of the original agreement.

 

With the Visa networks processing 39.9 billion transaction in FY2009 (Visa annual report), you would think there would be some economies of scale. The top 50 ACH financial institutions only originated 13.5 billion transactions last year according to NACHA. If a bank can offer $0.02 per ACH transaction ("flat pricing"), I think there is room for improvement for MC/Visa.

 

By the way, I think MC/Visa have fantastic business models (40%-50%+ operating income; 20%+ net income) aside from the potential litigation and regulatory risks.

 

Visa also only made 804 million in 2008 (I don't have the 2009 numbers)....that's about 2 cents per transaction...

 

 

how many annual negotiations do you think one person could handle? How many merchant accounts are there in the US? How much would one negotiator make a year?

 

 

let's say they can handle 1 negotiation a day on average (pretty high number really)

 

there are 25 million places that accept Visa worldwide...let's say 5 million are in the US (again, sounds a little low but let's go with it for the sake of discussion)

 

260 work days a year

 

5 million negotiations...drop that to 2 million to account for the chains, etc

 

that means 7692 negotiations a day....

 

 

let's say they only earn 50k a year

 

that's an additional 384,600,000 in salary costs alone...add for benefits, cost of office space, etc....and let's say it's half a billion dollars...

 

 

 

that's an extra 250 or so a year....OVER AND ABOVE what you're paying now...and that's just so Visa, etc can break even (and remember, NO company does something to "break even")

 

 

 

 

ARE fees high in some cases? Yes...no doubt about it...

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Visa also only made 804 million in 2008 (I don't have the 2009 numbers)....that's about 2 cents per transaction...

 

how many annual negotiations do you think one person could handle? How many merchant accounts are there in the US? How much would one negotiator make a year?

 

let's say they can handle 1 negotiation a day on average (pretty high number really)

 

there are 25 million places that accept Visa worldwide...let's say 5 million are in the US (again, sounds a little low but let's go with it for the sake of discussion)

 

260 work days a year

 

5 million negotiations...drop that to 2 million to account for the chains, etc

 

that means 7692 negotiations a day....

 

let's say they only earn 50k a year

 

that's an additional 384,600,000 in salary costs alone...add for benefits, cost of office space, etc....and let's say it's half a billion dollars...

 

that's an extra 250 or so a year....OVER AND ABOVE what you're paying now...and that's just so Visa, etc can break even (and remember, NO company does something to "break even")

 

ARE fees high in some cases? Yes...no doubt about it...

What you describe would clearly not work, and I did not mean that every merchant would/should have a custom agreement/rate with MC/Visa. Even AmEx only enters into a few "custom" pricing agreements (typically for large corporations and state governments).

 

I am definitely for free capital markets, and they are working hard for their shareholders. As I posted before, I think they have a fantastic business model and are operating no different than other industry leaders like Intel, Microsoft, Ticketmaster to dominate their respective markets.

 

I have no problems with MC/Visa (and AmEx) setting their own prices. I just do not like the fact that they can increase the "pass through" pricing through the processor without being a party to the existing agreement AND set industry rules.

 

Will things change? Probably not.

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What you describe would clearly not work, and I did not mean that every merchant would/should have a custom agreement/rate with MC/Visa. Even AmEx only enters into a few "custom" pricing agreements (typically for large corporations and state governments).

 

I am definitely for free capital markets, and they are working hard for their shareholders. As I posted before, I think they have a fantastic business model and are operating no different than other industry leaders like Intel, Microsoft, Ticketmaster to dominate their respective markets.

 

I have no problems with MC/Visa (and AmEx) setting their own prices. I just do not like the fact that they can increase the "pass through" pricing through the processor without being a party to the existing agreement AND set industry rules.

 

Will things change? Probably not.

 

 

 

 

 

I don't like that they can increase fees unilaterally either...

 

 

but then again, I don't like that walmart (hi George :angry: ) or Target can do the same thing...

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But the costs WOULD be higher...since Visa, etc would have to hire an ENORMOUS staff to negotiate those fees individually...

 

 

 

I'm not concerned with the banks making profit...but I AM concerned that it seems that some folks don't want OTHER people to be able to set their own prices...but it's ok for them to do so

 

Your scenario doesn't add up. They would not have to hire anyone. They already have processors, at least for smaller merchants and the bigger ones would have account reps. In practice there would not be the mess of VISA having to send a guy to every boondock to negotiate anything. Just the fact that merchants were allowed to have some leeway in how they accept cards would solve most of the problems.

 

if you own a grocery store, do you negotiate separately with Kraft and Hersheys? Of course not...you pay the price they're asking or you don't carry their goods...even though you're paying the "premium" for the WalMarts of the world getting their discount...

 

Actually yes, the grocery store does negotiate with Kraft. More importantly though, Kraft knows that is has to price the goods competitively in order to be bought. The key is, I the consumer am going to pay the cost of my delicious syrup. The merchant isn't told he has to give it to me for free and to chalk it up to the "tax deductible cost of doing business" or he will lose most of his business. Visa will not allow the cost to be paid buy me. Just that it could be allowed, as I explained before would be the game changer.

 

Where did you see .02 per transaction? I saw 5.5 cents. You mentioning Visa's costs made me look at their financials. HOLY COW!. They have profit margins that put monopolies to shame. They have gross profit margins of 80%, the highest I have ever seen- a bit more than Microsoft. Both Hershey and Kraft are less than half that. It is proof that Visa has huge pricing power.

In 2009 they had revenue of 6.90 Billion dollars and it cost them only 1.14 Billion!!!

 

If you look at their income statement, you can see something interesting. In 2007 they had revenues of 5.19 Billion and a cost of goods of 1.16B. In 2009 they had sales 1.8B higher but their costs of goods actually went down to 1.14B. Basically a transaction cost them nothing after they pay for their small fixed costs.

 

Here is their income statement, if you click on ratios on the left you can see the gross margins I listed. Mastercard's are similar. Their net income is 34.05%(after all their expenses are taken out) which is what most companies cost of goods are at. After seeing these numbers you have to see they aren't just skimping by.

http://www.dailyfinance.com/financials/vis...ncome-statement

 

Note: When I say Visa is a monopoly, I am using a shorthand. It is actually an oligopoly, but because it has only one real competitor, and there is extreme barrier to entry, and they are for these purposes unregulated, they are better off where they are than any monopoly I know. They have stronger pricing power this way. The best of both worlds.

 

http://www.amosweb.com/cgi-bin/awb_nav.pl?...amp;k=oligopoly

Edited by frank22

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I found this in my searching, it articulates the issue better than anything else I have seen. I don't see any downside for us at all. It says that in other countries Visa gets buy at less than 1% where here they are around 3%. There is tons of leeway for the fees to be more competitive and Visa to not need a bailout.

 

 

http://www.newrules.org/retail/news/soarin...dent-businesses

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My American Airline miles, Thank You Points, and Membership Rewards are more important than you, merchants!

 

B)

 

Seriously, though, it's a cost of doing business. If they don't like it, don't take it. See how their business fairs. Personally, I avoid places that don't accept plastic. I know a lot of people who do, and it out of convenience factor. I don't carry cash - at all. I'm not going out of my way to shop at a business who is in the dark ages.

 

And the thing I'd bring up is that, if the processing networks and banks were to lower their fees... would the majority of all businesses lower their prices because of the money they're saving? Probably not.

 

The consumer loses, honestly, two ways. Rewards and interest rates go up, and they're still paying the same for their groceries, etc.

Edited by J-M

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Visa will not allow the cost to be paid by me. Just that it could be allowed, as I explained before would be the game changer.

 

http://www.amosweb.com/cgi-bin/awb_nav.pl?...amp;k=oligopoly

 

 

This point is somehow being missed despite being reiterated....

 

And...J-M, please read all the posts in this thread. :) Appears like you haven't even read the last 2 posts. Seems like it.

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Visa will not allow the cost to be paid by me. Just that it could be allowed, as I explained before would be the game changer.

 

http://www.amosweb.com/cgi-bin/awb_nav.pl?...amp;k=oligopoly

 

 

This point is somehow being missed despite being reiterated....

 

And...J-M, please read all the posts in this thread. :lol: Appears like you haven't even read the last 2 posts. Seems like it.

 

Yeah, I don't think the details matter to some. There is not really much you can say. The two threads below have dealt ad nauseam with J-M's thoughts. There is not a hitting head against the wall emoticon, or I would use it. Sometimes you just have to smile though :o

 

 

Pryan67, When you looked at Visa's 2008 numbers you didn't account for their extraordinary charge, which I believe has to do with their settlement with American Express. I see where that would be easy to do. The lower income because of it shouldn't be considered in their daily business. As George says "I don't want to pay for your business mistakes" when the banks want to charge more because of defaults. Anyway it is not an issue for 2009.

 

They are raking it in more than any company I know of. There is no way a reasonable person can look at their numbers and say that's the way it should be. I guess if they give you a small piece back it is OK?

 

 

http://creditboards.com/forums/index.php?showtopic=409150

http://creditboards.com/forums/index.php?showtopic=413467

Edited by frank22

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I don't think that it's right for VISA (for example) to have different fees on various sub-types of VISA cards and then force a merchant to accept all of them, or none. To a merchant, a VISA card should be a VISA card with the same fee every time. Then he can look at that fee and decide if it's worth having the VISA sign on the door or not.

 

Also it seems that Visa and MC and to some extent Discover are a little too close for comfort. If they were actively competing on merchant fees, there would be numerous places that only accept one of the major card brands instead of all. This could also be the result of middleman banks refusing to write contracts that don't include both or all 3. To the merchant, this is the same as the card brands themselves being in collusion-- on paper, VISA and MC are independent "free market" entities, but he cannot access them in that manner.

 

Bottom line is the way the system is set up-- it doesn't allow merchants, especially small ones, to contract to accept some cards but not all-- there is no reason for the cards to compete with each other on merchant fees. The marketplace is far from free in that regard.

 

It's also ironic that convenience stores are spearheading this effort. Convenience stores are about offering the consumer, um, convenience, even if it costs extra.

Edited by mk_378

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A few thoughts:

 

Obviously when we're talking interchange fee, we're talking not only about the fees retained by assocaitions such as VI or MC, but also kickbacks to the issuer that effectively fund card rebates, points, and other benefits.

 

Our household sees a cash rebate in excess of 2.5% on monthly chrages of $3000+ between two card programs (both legacy products). It's no surprise to me that merchants are bearing the burden of those rewards.

 

Our VISA issuers are able to pass through the cost because the tradeoff is that the vast body of VISA cardholders are a powerful market that most merchants highly value.

 

Convenience store operators and other small merchants see signfiicant acceptance fees. But rather than exercise their own power in the market to aggressively confront those fees, they instead cry to Congress for relief. Sorry, but that's not the stuff of American capitalizism.

 

Frankly, I have little doubt that if the operators/merchants effectively coordinated efforts that the card issuers would quickly find the means to cut fees by .5% to 1%. All it would take is a solid stance to refuse VISA/MC cards until a compromise was reached. I see no way VISA/MC would stand pat in the face of such a revenue loss.

 

Revolution Card (and perhaps a few other lower fee processors) should stand ready to step in the void and welcome/reward active marketing efforts from the merchants.

 

Separately, the successful tactic of separate pricing of gas based on payment method should be extended to retail sales. While it's not practical to dual price on the shelf, awarding a 2% cash rebate certificate at the time of cash sale, with immediate redemption, should survive any challenges -- a tactic that should permit retailers to price in a manner that effectively recoups most credit transaction cost.

 

Bottom line, my point is the fact that convenience store merchants have done little but cry about the situation, rather than taking market effective actions, is pathetic.

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Why should the interchange fee for a rewards card be the same as the fee for a non-rewards card, when one contributes to rewards programs and the other doesn't? Why should the interchange fee for a card swipe transaction be the same as a card-not-present transaction, when there are different levels of fraud risk associated with each?

 

Excessive profits are present in many sectors. I don't see the profits of the oil industry or pharmaceutical industry being curtailed too much, why would Visa be any different? If people consider fees unfair, they can walk - there are other methods of payment, albeit less convenient. Or people can give up using their rewards cards, which are responsible for the higher merchant fee tiers, and are really just another profit center for banks. Rewards are financed by interchange fees, merchants, and other consumers (who don't cash in their rewards) - if rewards programs were completely eliminated, consumers as a whole would benefit from lower prices.

 

Or people can make all purchases in person and avoid internet transactions, where higher card-not-present fees apply because of the increased fraud risk. Truth is, none of that will happen. People want lower costs but not if it means less convenience. The prices of many products are inflated because of unnecessary packaging costs, probably far more than CC fees, but I haven't seen much progress in changing that. There are excessive costs passed on to consumers everywhere, it's nearly impossible to avoid them unless you live in a little cabin deep in the woods ...

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hdporter, My understanding is there are collusion laws that prevent them from banding together like you suggest. Also, there are cumbersome rules(IIRC federal/State laws) that make the separate cash and credit option so cumbersome that it is not used.

 

The mix of state laws that are there and that are NOT there really set up the merchants to have little choice. The bank lobbyist have earned their keep.

Edited by frank22

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hdporter, My understanding is there are collusion laws that prevent them from banding together like you suggest.

 

Anti colusion laws are a consideration. But I assert that the same advocates that are operating in order to push the petition for new laws have open to them means by which they con recommend, but not coerce, operators into rejecting VISA/MC until fees are lowered without violating collusion laws.

 

I don't claim to know the ins and outs of collusion laws, but collusion is usually claimed in which there are backroom agreements/compensation in exchange for some agreed action. What I suggest is warranted is merely a call to action that, if the operators themselves are sufficiently convinced of the net harm they incur under existing processing agreements, would be embraced.

 

If operators can't be convinced to suspend VISA/MC acceptance through persuasive means alone, then they likely don't have the commitment for action to succeed on any front, including legislative.

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Kind of on the fringe of the way the topic has turned...

 

CCCU (and I imagine other CUs) sent out a blast email yesterday asking members to write their Senators and complain about this proposal.

 

(I did, happily.)

 

... sorry all you store owners who feel abused, but your costs of doing business are your costs of doing business. Tell me you won't take my favorite card(s) and I'll probably walk out without purchasing, unless you offer something outstanding and/or unique and have no competition. If not, your prices or level of service (if applicable) had better be far superior to your competitors.

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Why should the interchange fee for a rewards card be the same as the fee for a non-rewards card, when one contributes to rewards programs and the other doesn't? Why should the interchange fee for a card swipe transaction be the same as a card-not-present transaction, when there are different levels of fraud risk associated with each?

 

The problem still is choice here. The stores don't get a choice in it. If they want to benefit from the program they should be able to sign up. The sign or insignia can say "reward benefit offered here" Then the customers can make a decision. As it is now the merchants must pay the extra fees for this product if they want to accept the cards at all. The choice to accept cards or not is a false one in this society, posters here have said they won't go to a merchant that doesn't accept them. People who say they can choose not to accept the cards are talking out of both sides of their mouth on this.

 

Excessive profits are present in many sectors. I don't see the profits of the oil industry or pharmaceutical industry being curtailed too much, why would Visa be any different? If people consider fees unfair, they can walk - there are other methods of payment, albeit less convenient. Or people can give up using their rewards cards, which are responsible for the higher merchant fee tiers, and are really just another profit center for banks. Rewards are financed by interchange fees, merchants, and other consumers (who don't cash in their rewards) - if rewards programs were completely eliminated, consumers as a whole would benefit from lower prices.

 

Oil company profits are exaggerated for political reasons, they are in line with other companies. Pharmaceutical companies profits are an issue. The company I looked at had margins of 74% compared to Visa's 80%, and drug companies have high research costs. Just that there is another industry raking it in does not mean we should do nothing about another one. In that case why don't we just let everyone walk all over us because we can't stop one from doing it?

 

 

Or people can make all purchases in person and avoid internet transactions, where higher card-not-present fees apply because of the increased fraud risk. Truth is, none of that will happen. People want lower costs but not if it means less convenience. The prices of many products are inflated because of unnecessary packaging costs, probably far more than CC fees, but I haven't seen much progress in changing that. There are excessive costs passed on to consumers everywhere, it's nearly impossible to avoid them unless you live in a little cabin deep in the woods ...

 

I am not saying every fee has to be the same, just that the products and costs should be able to be weighed by the merchants like every other. Coke is a popular product, but they don't force merchants to sell a higher priced product for the same price in order to be allowed to carry Coke do they? Even if they did it wouldn't make it right, and it would not be an excuse to let it happen here.

 

The added packaging costs is like the other companies profits example. You are just saying "but mommy he is doing it too!" It is a diversion, but "but he is doing it too" never helps a logical argument. How hard are you working on that packaging thing?

 

If you haven't realized it by now I am looking to get hired as a spokesman for the Merchants Association, how do you like my audition? :D To think I am doing this for free. :rolleyes:

 

I never thought about it until I read members here whining about not being able to charge up a candy bar. Now it is a pet peeve of mine that some think they should be able to use the banks monopoly to their advantage, without any thought to what it really means.

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Why should the interchange fee for a rewards card be the same as the fee for a non-rewards card, when one contributes to rewards programs and the other doesn't? Why should the interchange fee for a card swipe transaction be the same as a card-not-present transaction, when there are different levels of fraud risk associated with each?

I work in the merchant services industry setting up the processing you guys are arguing about. I don't really have any problem with the non qualified surcharges that go along with rewards cards.

What I see an issue with is that the rates are not published in a way a merchant can understand what they are paying for a given card. The merchant also has no ability to decline to accept a card that may cost 3% more than a basic Visa.

The merchant also has no ability to terminate their contract with the processor when the rates are changes. I could mandate a 1% increase on all 9000 of my accounts and the merchants would have to either pay it or pay the termination fee (and possibly find themselves on the match list) for breaching our agreement and ending the contract early.

To date every increase I have ever enacted is preceded by a letter to the merchant with a copy of the Visa or MC interchange increase notification enclosed.

I think it's complete BS for the processor (me), or the banks (visa/MC) to be able to change any fee without getting the contract re-signed.

 

What should be done?

a couple things. Let the merchant agree on the base rate like they do now, for instance 1.75%-$0.20-$5.00 statement, then let them decide about the rewards cards like they do with check cards now if they want to pay for the added volume of people who use them and let them agree to the fees separately.

Next I'd like the issuers to agree on 10 or less interchange categories for face to face transactions and set a list of fees for each, then I'd like them to put the interchange category in numerical form from 1-10 on the card somewhere so the merchant can see what they are paying (or not paying) for each card and explain to card holders if they don't accept that high of a level of rewards card (instead of just saying "your card doesn't work").

 

Now the merchant can accept Visa CPS retail transactions and accept up to level 5(or any level they choose) rewards cards which carry a 1.5% +$0.05 surcharge and KNOW they are still making margin. They would have no solid argument if they agree to the fees. It's pretty hard for me to defend Visa/MC's position when a merchant shows me a contract signed 1 year ago sitting next to a statement from last month and none of the numbers match.

 

I wonder how the people defending their position would feel if their bank just added a new mortgage category to their mortgage and added a few points when they feel like it. Don't worry too much, there's only a $10,000 cancellation fee for refinancing early.

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hdporter, My understanding is there are collusion laws that prevent them from banding together like you suggest.

 

Anti colusion laws are a consideration. But I assert that the same advocates that are operating in order to push the petition for new laws have open to them means by which they con recommend, but not coerce, operators into rejecting VISA/MC until fees are lowered without violating collusion laws.

 

I don't claim to know the ins and outs of collusion laws, but collusion is usually claimed in which there are backroom agreements/compensation in exchange for some agreed action. What I suggest is warranted is merely a call to action that, if the operators themselves are sufficiently convinced of the net harm they incur under existing processing agreements, would be embraced.

 

If operators can't be convinced to suspend VISA/MC acceptance through persuasive means alone, then they likely don't have the commitment for action to succeed on any front, including legislative.

 

I know less than you on the collusion laws, but I think the those types of laws are just too difficult to deal with because they would have wide ramifications in many industries. I would bet many more sub commitees in both houses. It would be overkill, and overkill that doesn't work.

 

... sorry all you store owners who feel abused, but your costs of doing business are your costs of doing business.

 

Any cost of business should be able to be managed. That is the only real issue, not that there is cost. Trash service is a cost of business, but he is able to shop around. You can't when you are dealing with a monopoly, but there are things that could be done to alleviate the matter.

Edited by frank22

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Why should the interchange fee for a rewards card be the same as the fee for a non-rewards card, when one contributes to rewards programs and the other doesn't? Why should the interchange fee for a card swipe transaction be the same as a card-not-present transaction, when there are different levels of fraud risk associated with each?

I work in the merchant services industry setting up the processing you guys are arguing about. I don't really have any problem with the non qualified surcharges that go along with rewards cards.

What I see an issue with is that the rates are not published in a way a merchant can understand what they are paying for a given card. The merchant also has no ability to decline to accept a card that may cost 3% more than a basic Visa.

The merchant also has no ability to terminate their contract with the processor when the rates are changes. I could mandate a 1% increase on all 9000 of my accounts and the merchants would have to either pay it or pay the termination fee (and possibly find themselves on the match list) for breaching our agreement and ending the contract early.

To date every increase I have ever enacted is preceded by a letter to the merchant with a copy of the Visa or MC interchange increase notification enclosed.

I think it's complete BS for the processor (me), or the banks (visa/MC) to be able to change any fee without getting the contract re-signed.

 

What should be done?

a couple things. Let the merchant agree on the base rate like they do now, for instance 1.75%-$0.20-$5.00 statement, then let them decide about the rewards cards like they do with check cards now if they want to pay for the added volume of people who use them and let them agree to the fees separately.

Next I'd like the issuers to agree on 10 or less interchange categories for face to face transactions and set a list of fees for each, then I'd like them to put the interchange category in numerical form from 1-10 on the card somewhere so the merchant can see what they are paying (or not paying) for each card and explain to card holders if they don't accept that high of a level of rewards card (instead of just saying "your card doesn't work").

 

Now the merchant can accept Visa CPS retail transactions and accept up to level 5(or any level they choose) rewards cards which carry a 1.5% +$0.05 surcharge and KNOW they are still making margin. They would have no solid argument if they agree to the fees. It's pretty hard for me to defend Visa/MC's position when a merchant shows me a contract signed 1 year ago sitting next to a statement from last month and none of the numbers match.

 

I wonder how the people defending their position would feel if their bank just added a new mortgage category to their mortgage and added a few points when they feel like it. Don't worry too much, there's only a $10,000 cancellation fee for refinancing early.

 

 

 

I'm curious...

 

 

how do you get around modifying the contract unilaterally without giving them the opportunity to get out of it...any material change in the contract should allow the other party to cancel it...since the original contract is no longer valid

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I'm curious...

 

how do you get around modifying the contract unilaterally without giving them the opportunity to get out of it...any material change in the contract should allow the other party to cancel it...since the original contract is no longer valid

pryan67, below is the typical boilerplate language:

 

Merchant agrees to follow the Card Acceptance Guide which is incorporated into and made part of this Merchant Agreement, and to be bound by the operating regulations and rules of American Express, Discover, MasterCard, Visa, and any other card association or network organization covered by this Merchant Agreement, as any of the above referenced documents may be modified and amended from time to time.

Merchant Processor may change the fees and/or discount rates upon thirty (30) days written notice to Merchant in the event such changes are as a result of changes instituted by the card association(s) or network organization(s).

Merchant agrees to pay any additional fees incurred as a result of Merchant’s subsequent acceptance of transactions with any product that it has previously elected not to accept.

It is rare (if not impossible) to have a merchant agreement that will not have the above language (or similar). The last line is a "catch all" for new product types with new rates.

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"IF" your fee is too high...MOVE ON...there is not just one place to go

 

I even saw an ad for SAMS having credit card authorization terminals

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I'm curious...

 

how do you get around modifying the contract unilaterally without giving them the opportunity to get out of it...any material change in the contract should allow the other party to cancel it...since the original contract is no longer valid

pryan67, below is the typical boilerplate language:

 

Merchant agrees to follow the Card Acceptance Guide which is incorporated into and made part of this Merchant Agreement, and to be bound by the operating regulations and rules of American Express, Discover, MasterCard, Visa, and any other card association or network organization covered by this Merchant Agreement, as any of the above referenced documents may be modified and amended from time to time.

Merchant Processor may change the fees and/or discount rates upon thirty (30) days written notice to Merchant in the event such changes are as a result of changes instituted by the card association(s) or network organization(s).

Merchant agrees to pay any additional fees incurred as a result of Merchant’s subsequent acceptance of transactions with any product that it has previously elected not to accept.

It is rare (if not impossible) to have a merchant agreement that will not have the above language (or similar). The last line is a "catch all" for new product types with new rates.

\exactly right. I could go pull verbiage from one of my contracts but you hit it for the most part. The argument made by the above poster is the core of the topic as I see it. I as a card processor retain my right to change your (merchant) pricing as I see fit. You do not have the right to cancel without penalty.

 

"IF" your fee is too high...MOVE ON...there is not just one place to go

 

I even saw an ad for SAMS having credit card authorization terminals

Yep, through a 3rd party processor with terminals grossly marked up and pricing is amazingly hard to understand. Want to see a good example of a bad processing agreement, look at what Sams is offering their members. Same package as Office Max.

What George doesn't understand (there's a surprise) is that the interchange fees are exactly the same pricing for all acquirers and the markup is less than .1% in most every case. Shopping around will save you $15 a month on your $100,000 in volume in my area.

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pryan67, below is a link to the State of Texas agreement:

 

http://www.window.state.tx.us/procurement/cat_page/cat_920_m1_0910.html 
http://www.window.state.tx.us/procurement/tools/StateofTexasSelectAgreement_111309.pdf 
http://www.window.state.tx.us/procurement/tools/StateofTexasSched_A.pdf

Even with the great rates negotiated by the State of Texas, the agreement includes the following boilerplate:

 

1 Acceptance Of Certain Payment Instruments
In offering Visa and MasterCard payment options to your Customers, you may elect any one of the following options: (i) accept all types of Visa and MasterCard Payment Instruments - including consumer credit and debit/check cards, and commercial credit and debit/check cards; (ii) accept only Visa and MasterCard credit cards and commercial cards (if you choose this option you must accept all consumer credit cards (but not consumer debit/check cards) and all commercial card products, including business debit/check cards; or (iii) accept only Visa and MasterCard consumer debit/check cards (if you choose this option you must accept all consumer debit/check card products (but not business debit/check cards) and will not accept any kind of credit cards). The acceptance options above apply only to U.S. domestic Visa and MasterCard Payment Transactions and, as such, they do not apply to Visa or MasterCard Payment Instruments issued by non-U.S. banks. In other words, if your Customer presents a Visa or MasterCard Payment Instrument issued from a European or Asian bank, for example, you must accept that card just as you would any other card (provided you receive a valid authorization and confirm the identity of the Customer, etc.), regardless of the acceptance option choice you have made and even if you have elected not to accept that type of Payment Instrument from U.S. issuers. If you choose to limit the types of Visa and MasterCard Payment Instruments you accept, the following rules apply to you: (i) you must display appropriate signage to indicate acceptance of the limited acceptance category you have selected (that is, accept only debit/check card products or only credit and commercial products; (ii) if you elect limited acceptance, any Transaction Data submitted into interchange outside of the selected product category will be assessed the standard interchange fee applicable to that card product and may also have additional fees/surcharges assessed; and (iii) additional Visa and MasterCard Rules that may be applicable to you may be viewed on their respective websites.

9.2 Price Changes. You acknowledge that your pricing is based on your annual volume of Transactions, method of processing, type of business, and interchange qualification criteria as represented to us in your Application and restated on Schedule A. To the extent your actual volumes, method, type, and criteria differ from this information, we may modify the pricing on Schedule A with 30 days' prior written notice. In addition, we may change our fees, charges, and discounts resulting from (i) changes in Payment Brand fees (such as interchange, assessments, and other charges); (ii) changes in pricing by any third party provider of a product or service used by you; or (iii) fees which are added by a Payment Brand or card issuer. Such new prices will be applicable to you as of the effective date established by the Payment Brand or third party provider.

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Below is a link to the State of New York merchant rates:

 

http://www.tax.state.ny.us/evta/ 
http://www.tax.state.ny.us/evta/documents/nys_global_contract_appendix_d_11-1-09.pdf

28 pages of merchant rates and fees. . .

 

The interchange rates listed above represent substantially all of the card association's US Region interchange rates (as of the date of the most recent pricing update, 4/1/2009). An effort has been made to ensure that the rates listed above present accurately the rates that the associations will assess. In the event that the association rate differs from the rates listed above, or are not included in this schedule at time of Merchant billing, the association's rate prevails.

So even if the merchant rates in the written agreement are wrong or misquoted, the merchant has no recourse and must pay the higher fees.

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