August 13, 2009
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Zeelanders Tackle Interchange Inequities, Pt.3
What was done?So far, things are only completed in part. The commission has decreed that the retailers will be allowed to pass on the interchange fees directly to credit card sales. Also, to break the anti-competitive breach, the credit card issuing banks will be given monitored freedom to lower interchange fees, but not to raise them beyond credit card associations' ceilings. Also, these rates must be publicly disclosed. This action was designed to foster fair competition between issuing banks and retailers in fairness to consumers.
Unfortunately, all this won't take effect until April of next year. But, at least, it's a good step in the right direction. Mark Berry, chairman of the Commission explained that these steps will, eventually "improve competition between companies that provide credit card services to retailers". Some retail businesses will be able to undercut their direct competition with lower fees (or choosing not to pass them on at all). Other types of retailers with more slim margins will only be competing with similar retailers who must also pass on all the fees just to stay in the black. It's more fair and the customer wins.
The worst-off victims from the abuse are happy with the rulings so far. These would be the hard-pressed merchants who were squeezed from both ends. Since customers will only pay what they will pay and the credit card interchange fees were non-negotiable, they struggled just to say in business. John Albertson, chief executive for the Retail and Wholesale Merchants Association commented that this agreement was a "step in the right direction" but lamented about the delays. Retailers must wait till next year to see it and, meanwhile, there are still remaining issues to be dealt with.
The ultimate effect remains to be seen. Many businesses have already backed out of accepting credit cards at all. Others have already resorted to skirting the old rule by offering discounts to those who pay cash. Still others simply break the rule by directly passing the interchange fees to the transaction.
When Australia passed a similar credit card ruling it was found that most of the agitation went away. It was noted however, that retail prices did not go down by any substantial measurement. Perhaps, fewer retailers went out of business. This is hard to scope.