August 13, 2009
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Zeelanders Tackle Interchange Inequities, Pt.1
"Interchange what???"Little understood by most people, the retail industry has been appealing for years now for some relief. Not just in New Zeeland but worldwide. "Interchange Fees" are the transaction (sales) percentage demanded of retailers by the credit card issuers and credit card associations for the benefit of accepting credit card payments. Of course, interchange fees are necessary and good and this has never been questioned by anyone. The rub is that the rate of these has always been one-sided and set arbitrarily without the retailers having any say in the matter.
The US is still facing the problem and, up till recently, the issue has not been addressed anywhere. Merchants across the US (and elsewhere) have long been appealing for some relief on existing credit card interchange rules. It's good to see that it's finally being addressed somewhere, even if it's the other side of the planet. Australia and New Zeeland have finally stepped up to the plate and done something about it. Yet still, because it's little understood, much of the press is missing the good in it. Credit cards are vital in today's economy and their growth has allowed certain flaws in the system to grow also.
Retailers, typically have to rely on slim margins, due to competition in free-market societies. Yes, it is true that they enjoy an edge if they accept credit cards. Unfortunately though, the edge evaporates as the benefit provided is eaten up by overbearing interchange fees, causing a net loss after expenses.
During the recent negotiations in the US over Senator Dodd's highly touted credit card protection bill, this issue was not included as not being directly in line with consumer protections. As a result, the US has still not dealt with this issue. These hard-pressed retailers are still seeking relief here and, maybe we can take a lesson by the way the Aussies and Zeelanders have done it.