August 04, 2010
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News: Trading In The Credit Card
New technology will soon turn most of our cell phones into a credit card payment processing device or will replace our plastic card with a tiny chip. However, are most Americans ready to give up their plastic card? Experts believe that although the process by which consumers handle their credit card purchases may change, not much else is likely to be different. Fees generated by the credit card networks, Visa and MasterCard as well as the card issuers and banks will remain the same and most likely increase in size. It is not likely that consumers will change spending habits resulting from a change from plastic to a cell phone chip, and most likely the new technology will make it even easier for consumers to rack up unnecessary charges.
Some of the fees involved each time the consumer swipes his credit card are interchange fees, over-the-limit fees, late payment fees, and annual fees. Merchants pay interchange fees which typically range between 2 percent and 3 percent of the total transaction amount. A portion of the fee is paid to the merchant's bank, the credit cardholder's bank and the major network. These fees have gained a great deal of attention lately as merchants and lawmakers have lobbied for fairer regulations. It is believed that merchants pass these fees onto the consumer through higher prices. Visa and MasterCard set interchange fees and merchants are given little if any say in negotiations between the banks and the major networks. Experts say that Visa and MasterCard have a monopoly on the market which makes it almost impossible for any other network to enter the market and offer competitive services.
While new technology continues to immerge, cardholders appear to be untouched. Most likely because many have not seen any advantage to paying the extra cost for a Smartphone or credit card application chip as it does not affect any of the fees involved in using a card. Surmountable costs experienced by banks and card issuers resulting from card theft and identity fraud will also continue to keep interest rates and fees high. We'll soon know how Americans respond to the new technology as three of the nation's largest cell phone companies are on the verge of releasing the new service.