Commented on here in the past has been interchange fees on credit cards. My position at the time was that it was probably a good thing that credit cards forced retailers not to pass on the interchange fees (because it encouraged people to get used to the concept of cards) but that maybe it wasn’t needed anymore (because we’re too comfortable with it). In the course of our conversation, Web won me over to the point of view that regardless of whether or not masking the fees was a good thing at the start that the time has come for retailers to be able to start passing these charges along.

One of the things that convinced me was the research I did based on some of the things he said, which demonstrated that one of the most damning things about the card/retailer relationship was that the latter would have absolutely no idea what the fees would be at the end of the day. That sort of lack of transparency is really problematic. As is, on a larger scale, the consumers being unaware of what the interchange fees are, exactly, is also something that I am less than comfortable with. I know people who get agitated and angry when retailers put minimum purchases on card purchases (which they’re not supposed to do, but sometimes do anyway) without any real idea that there are absolute reasons why they would do this. It also provides credit card companies the ability to inflate interchange fees without the consumer objecting, despite the fact that we get bit in the end. All of this aggravated by the fact that which card the consumer uses ends up mattering because some cut the retailers less than others. All of this provides no incentive for banks to keep charges down. After all, you can’t accept a low-interchange card without also accepting a high-interchange one if they’re under the same banner (Visa, Mastercard, etc). And so, I decided that passing these charges on to the consumer in a more transparent manner is a win/win for everyone except the card companies.

Apparently a little while ago an agreement was reached with Mastercard and Visa that allows retailers to cut slack to people that use the lower-intercharge cards. With all of the above in mind, this strikes me as a good thing. Some of the ways in which this will make things even more complicated for the consumer make me cringe, but the entire system was set up in a very complicated fashion and it’s not realistic for the consumer to be immune from this. Ultimately, I’m not sure how much good this is actually going to do since really only for the largest of the large retailers will it be worthwhile to complicate the system. But it’s a start. And it seems that it would have to provide more leeway for cash discounts, which are allowed but for which the rules are a bit ambiguous.

This would all be much easier if retailers would be allowed to do what my old comic shop used to do. They basically said that for any purchase under $10, they wanted a $.50 fee for using a debit card. They were actually upfront that they couldn’t do this and framed it more as a request. Even though money was tight, I complied.

Ultimately, what would be really nice is market pressure to simplify the process. I’m not entirely sure how to get there from here, though. The barriers-to-entry are so tough that those at the top can stick together without formal agreements that would violate anti-trust law and nobody is going to come along with vanilla-only cards and none of them are going to simplify things for the sake of a consumer that is likely to remain oblivious to the deals that are going on behind the curtains. You could try to regulate simplicity by forcing interchange caps and the like, but I’m not there yet for supporting that.

Category: Market

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