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September 28, 2009 • Issue 09:09:02

Swiping at interchange reform

The Electronic Payments Coalition recently lashed out at the National Association of Convenience Stores in a full-page advertisement in Politico, a Washington, D.C.-based publication covering national politics. The EPC, an organization of credit unions, banks and payment card networks dedicated to preventing government-imposed interchange reform, accused convenience stores of overcharging customers for goods and services.

The ad stated that the only thing convenient about convenience stores is "they'll lighten your wallet for you. ... It's not enough that convenience stores overcharge for what you buy. Now, they want to overcharge you for how you pay. ... Convenience stores want to make you pay to use your debit or credit card. Talk about putting the 'con' in convenience store!"

Battle for basis points

The ad, according to NACS, is in response to the retail association's efforts to bring transparency and competition to interchange fees. The two organizations have drawn battle lines over the Credit Card Fair Fee Act of 2008, which, if passed by Congress, would mandate negotiation of interchange pricing between merchants and the card brands.

"Every other aspect of the payments industry chain is competitive. Why can't we have that with interchange?" said Lyle Beckwith, Senior Vice President of Government Relations at the NACS. "And transparency by itself isn't enough. There has to be an opportunity for credit card companies to compete for merchants' business.

"You can do things when you have no competition that you otherwise couldn't do. And because there's no transparency, the rates are far too confusing," Beck-with added.

No lack of competition

EPC officials could not be reached for comment. However, the coalition's Web site states there is nothing preventing any merchant from engaging in negotiations directly with Visa Inc. and MasterCard Worldwide, and merchants can - and do - negotiate interchange fees applicable to their transactions directly with the card brands, based on a "variety of factors."

Additionally, the EPC reported there is active competition in the payment system and that all of these payment networks, including companies such as PayPal Inc. or Revolution Money Inc., are fiercely competing for business in the market. Beckwith disagrees.

"The EPC's mandate, as far as I can tell, is to preserve the status quo as long as they possibly can and keep the gravy train rolling," Beckwith said. "And if what the EPC said on their site is correct, where's the transparency? That's the only way to foster competition.

"I mean, look at our industry. We are really dumb - we put, in six-foot letters, a price down to the tenth of a penny on every street corner gas station, and when one guy drops his price everyone has to do the same. But that is what breeds competition - and there is zero competition in the credit card market for interchange. And because interchange fees are hidden and secret, there's no incentive for any kind of pricing war between the card brands to lower their basis points."

Consistent model

The NACS said that interchange is the second-highest operating cost in the convenience store industry - behind labor. However, the EPC said on its Web site that interchange legislation would result in a tightening of consumer credit resulting in fewer sales for small merchants. Beckwith feels the EPC is afraid of losing its market share.

"Interchange fees have tripled since 2001, and our industry alone paid $8.4 billion in credit card fees last year - and only made $5.2 billion in pretax profits," Beckwith said. "Our members can't plan, can't control these costs and cannot sustain paying more to the credit card companies than they make." He believes what the NACS is trying to accomplish on Capitol Hill is a "very reasonable" market-based solution.

"We have never advocated for a set interchange fee," he said. "We feel the prices are too high, but at this time there's nowhere else for us to go. We just want to level the playing field and make this process like any other in the business world." end of article

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