March 14, 2007
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NEWS: The Interchange WarsDoubtlessly, you were aware that when you use your credit/debit card to pay for something at a store, that merchant pays for the privilege of accepting your plastic. This cost is called a merchant discount fee (which is ironic, since no-one is getting any kind of a discount from it), and 90% of it involves interchange, or a cost paid to the merchant's bank, the customer's credit card issuer, and the credit card company to supposedly cover the costs of electronic processing. Right now, retailers are lobbying Congress to set a cap on the amount and/or percentage that banks and card companies can charge as interchange fees. Of course, the latter group vehemently opposes any measure(s) that would interfere with their ability to turn a profit.
Both sides have formed coalitions to wage war on the issue – the Merchants Payments Coalition consists of various trade associations, and the Electronic Payments Coalition consists of 55 banks and financial institutions.
Right now, it seems that the proposed legislation has bipartisan support in Congress, where representatives from both parties have spoken in support of it. A major detractor to interchange fees in general is that the cost to retailers paying them is necessarily passed on to consumers – including those paying by cash. The issue is a political sticky wicket, however – the newly powerful Democratic party must choose whether it would rather gain the support of merchants, from huge corporations down to mom-and-pop businesses, or court the banking industry, which undoubtedly represents the richer interest. Either way, it looks like both sides have prepared for battle – electronic purchases represent over 50% of all transactions, and the money in the offing over the issue is hard to overestimate.