By Patti Murphy
ProScribes Ink
Credit card interchange rates in the United States are too high and too complex. Don't take my word for it; just compare the multi-page set of U.S. rates to interchange elsewhere. Australia has only two rates: 0.88 percent for business-to-business payments; 0.21 percent for standard retail payments.
The European Union capped consumer credit card interchange at 0.30 percent. Averaged out, interchange on U.S. consumer transactions is about 1.7 percent, nearly six times the rate paid in Europe. Only merchants in South Africa (average 1.48 percent) and Canada (1.4 percent) come close to paying the rates U.S. merchants pay.
I'm not suggesting interchange should be regulated. We've seen how that plays out. Thank you, Senator Richard Durbin, D-Ill. But the free-market approach to interchange isn't working in the United States, because the heavy hand of one dominant player (Visa) skews the market dynamic.
A proposed class-action lawsuit filed by ISO MiCamp Solutions in December 2023 in the U.S. District Court for the Northern District of California illustrates this. It alleges Visa forces unnecessary roadblocks on ISOs selling and merchants adopting alternative pricing schemes like surcharging and cash discounting.
Visa isn't the only card network available to merchants. But it is the most popular. As such, it sets rules the others tend to embrace. Although not always. As MiCamp noted in its lawsuit, leading "competitors," namely American Express, Discover and Mastercard, do not have or do not enforce "policies as stringent as Visa's cash discounting and surcharge policies."
MiCamp alleges Visa, through its anti-differential pricing initiatives, is in violation of federal antitrust law. ("Differential pricing" refers to cash discounts and credit card surcharging.)
James Huber, principal at Global Legal Law Firm, and lead attorney representing MiCamp and the proposed class of ISOs, suggested in an email that Visa deliberately obfuscates its policies and rules. "The surcharge/discount rules are unclear on purpose to allow only Visa and the issuers to benefit and squeeze out any margin for the ISOs," he wrote.
Differential pricing, while theoretically possible for decades, has taken off only in recent years. As gas stations and government agencies learned long ago, this pricing strategy responds to a major pain point for businesses that accept cards: the rising cost of acceptance.
Visa has never hidden its disdain for credit card surcharging, or for merchants offering discounts to customers who pay with cash or other less expensive methods. But businesses and ISOs have the law on their side.
Forty-eight of the 50 states expressly permit credit card surcharging, and the Durbin Amendment specifically allows businesses to induce customers to use specific payment methods, for example, by offering discounts for cash payments.
In July 2023, Visa lowered the cap on permissible credit card surcharging from 4 percent to 3 percent, which is lower than permissible surcharges in some states and can be lower than the all-in cost of processing, according to MiCamp.
Visa has also gone after merchants, dispatching "secret shoppers" to identify those that might be running afoul of rules it has established around cash discounting, such as specific signage and the way prices are displayed on shelves or menus. Violators are subject to what can be hefty fines.
MiCamp said one of its customers got caught in one such sting, resulting in the ISO having to shell out $70,000 in fines. MiCamp noted that other ISOs have had similar experiences "While the ISO has the option to pass the penalties that Visa assesses onto the merchant, it would likely put many merchants out of business to pay a huge fine," MiCamp stated in its court filing.
"Visa's use of paid employees, or as Visa has coined them, 'secret shoppers,' to audit merchants and enforce its surcharge rules is akin to utilizing privately paid police officers to effectuate its goal of continuing to assess quasi-criminal penalties on ISOs," MiCamp asserted.
The big issue, however, is the ambiguity of Visa's rules, which MiCamp asserts amounts to an end-run around legally sanctioned pricing decisions. "And by making cash discount programs confusing and fining ISOs for non-compliance, Visa effectively stopped ISOs from showing consumers how much Visa charged," MiCamp noted in its court filing.
Well, that horse left the gate—metaphorically—when merchants coined the term "swipe fee" in their ongoing dispute over rising interchange. Consumers know that it costs merchants money to accept card payments.
Here's one thing I don't get: if Visa is so concerned about public perception, why not place a moratorium on interchange price hikes? Clearly, Visa and card issuers are able to make money in the EU, Australia and other countries where interchange is capped at a fraction of what U.S. merchants pay. If they weren't making money under those caps, it's a safe bet they wouldn't be doing business in those countries. Besides, it's not like Americans are up in arms over surcharging and cash discounting. We're accustomed to getting discounts for cash and paying "convenience fees" when filling up our gas tanks, purchasing event tickets, etc. Plus, the merchants, ISOs and agents I've spoken with say there has been little to no customer blowback.
Here's another thing I don't get: differential pricing eliminates a major pain point for merchants, and a serious point of contention between them and the card brands. If merchants are not directly affected—that is, if they are not shelling out the cost of interchange themselves (or most of it, since debit cards can't be surcharged)—they will be less inclined to harangue the card brands and issuers over interchange, and seek legislative remedies.
Maybe it's just a control thing. Visa has always called the shots when it comes to card payments. Allowing for ISO and merchant discretion over how interchange gets passed on detracts from that power dynamic.
In a 2017 ruling, the Supreme Court took New York to task for regulating how merchants disclose credit card surcharges to customers, asserting that it amounted to an infringement on merchants' free speech rights. Couldn't the same be said for Visa's micromanagement of cash discounting and surcharging?
Here's a thought: let merchants and cardholders work things out between themselves. That is, after all, how free markets are supposed to work. 
Patti Murphy, self-described payments maven of the fourth estate, is senior editor at the Green Sheet. She also co-hosts the Merchant Sales Podcast, and is president of ProScribes Ink, www.proscribes.net.
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