August 13, 2009
-
Zeelanders Tackle Interchange Inequities, Pt.2
What was the deal?The plight of these merchants is not because they have to pay a fee for the added advantage of gaining more sales because of accepting credit cards. They problem is that the fees are arbitrarily by the credit card providers. The merchants have no say in what that rate is nor how the fee is paid. "Best rate" fees (meaning no penalties added) typically range from 0.5% to 1.0% of each sale. Of course, the fee has to be collected from somewhere in order for the merchant to stay in business. Because they retailer was prohibited from passing the cost to the credit card customer, it ended up being spread across all sales, including cash customers. In Australia, as the fee kept rising and was approaching the top range of 1%, the commission stepped in. They directed that the fee be reduced to 0.5%
In New Zeeland, the case here is not as straight-forward There was also some mischief involved. The credit card associations and issuing banks were found to be in cahoots. They had mutually agreed to fix the rate at double (1.8%) of what Australia had already found to be considered to be unacceptable. Finally, the Commerce Commission has stepped in. Among the perpetrators were VISA and MasterCard, The Warehouse Financial Services and the main credit card issuing banks. Thus far in an out-of-court settlement, VISA has agreed to pay damages of $2.6m. The others are still pending. The earnings on the $19 billion worth of credit card transactions at 1.8% (figures taken from 2004) netted about $342m in interchange fees.
Arbitrating between the retailers the credit card associations and the issuing banks, the commission reviewed the inequitable conditions of the merchants not being allow to pass the interchange fees directly from credit card sales and the issuing banks being pressured to accept the association's terms on "fee-fixing".