The Green Sheet Online Edition
August 11, 2008 • Issue 08:08:01
To Capitol Hill we go
The payments industry has reached new heights: the U.S. Congress, unfortunately. A House of Representatives bill proposed by Rep. John Conyers, D-Mich., and Rep. Chris Cannon, R-Utah, was recently passed by the House Judiciary Committee on a 19 to 16 vote.
The Credit Card Fair Fee Act of 2008, HR 5546, is backed by retailers, who accuse Visa Inc. and MasterCard Worldwide of levying "excessive fees."
For most, reading the document would likely affect them like a triple-shot of sleeping medication. However, payment professionals are beginning to understand the potential impact of such bills, assuming they are passed into law.
As initially written, HR 5546 would enable retailers to engage in collective negotiations with processors of any electronic payment service with significant market power over the terms and fees for access to that system. If the retailers and processors do not reach a voluntary agreement, the matter would be brought before a panel of three expert judges appointed by the Department of Justice Antitrust Division and the Federal Trade Commission.
These judges would investigate the terms, fees, termination penalties and market conditions for the bankcard industry. They would then order a mandatory settlement conference. If the retailers and processors failed to reach an agreement during the conference, the judges would conduct a hearing at which each side would present its final offer of all terms, fees and so forth.
The judges would then select the offer that most closely represented the fees and terms that would be negotiated in a fair and competitive market. The judges' decision would govern access to the electronic payment system for three years but could be superseded at any time by a voluntary agreement concluded between retailers and providers.
This essentially allows the government, or judges, who may or may not have a full understanding of our industry, to price-fix.
If you think this wouldn't impact your portfolio, consider this: The National Retail Federation is the world's largest retail trade association. Its membership comprises all retail formats and channels of distribution, including department, specialty, discount, catalog, independent, drug and grocery stores; Internet retailers; and the industry's key trading partners of retail goods and services.
The NRF represents an industry with more than 1.6 million U.S. retail companies, more than 25 million employees - about one in five American workers - and 2007 sales of $4.5 trillion. As the industry umbrella group, the NRF also represents over 100 states, national and international retail associations and certainly many merchants within the portfolio of every merchant level salesperson (MLS).
If and when the NRF negotiates on behalf of its membership, every MLS, ISO, merchant service provider, processor and card brand will be affected.
The industry speaks out
The major card brands, the Electronic Transactions Association and other industry trade groups have indicated they are opposed to this legislation. I searched many discussion threads on GS Online's MLS Forum and culled the following thoughts from more than 50 pages of posts to illuminate what the feet on the street have to say about the issue:
In my humble opinion, this bill is well on the way to being defeated. This has become more about politics for Durbin than anything else. I do not believe that his ideas will in any way help merchants. I am not speaking about the Wal-Marts; I am speaking of the small and medium-size businesses that most MLSs deal with.
Most small merchants can't be bothered to fill out a new app let alone stand in front of three judges or government employees and argue their case. Knowing how merchants think is an important piece of the puzzle.
Durbin made a huge mistake. ... In addition to removing the judge arbitration panel, Conyers included an amendment that would require merchants to pass on any interchange savings they reach under its provisions to customers or employees. - Diego
I want to believe that not a single bill will be passed. However, the odds are likely that at least one or more will. The Conyers Bill was predicted "never to get out of committee." It did. It is now predicted to not go for a full vote. It will.
In the middle of a failing economy with banks closing, our Congress ran this bill through the committee process in record time for this type of bill. No one should ever welcome more government regulation.
The Merchants Trade Association, with hundreds of lobbyists, gained momentum as ISOs and MLSs sat on the sidelines. Ultimately, the problems - and the loss of income - will be pushed down to us, but we have a chance to change this if we act now. - Mike Maxon
Tens of millions being spent by the fed to save retailers a couple tenths of a percent. I am sure the consumers would like to see this effort directed at big oil and energy companies.
I wouldn't think this would offer enough brownie points for the effort. How about some of these guys putting their hands back in their own pockets. My utility bill has gone up 87 percent in the last 18 months - not an exaggeration. - Coach Bob
Fine. They regulate the fee. Then we are all playing on a level playing ground. Great. Now I build a portfolio of merchants that I can earn only a max of, say, 30 basis points instead of, say, 80. I give merchants an additional option: I will invoice them monthly for the extra 50 basis points, and they get my service. - K-Wags
The bill states the merchant must pass along the savings to customers and/or employees which, of course, is an impossible task to track and prove, not to mention the fact that the merchants want the savings going to their bottom line, not to the consumer.
Also causing the bill problems are the enforcement issues: fear that the costs will simply be passed along to the consumers, who will lose rewards and get hit with higher interest rates and fees on the issuing side. This type of bill in Australia failed and is causing problems there. No doubt the ISOs should view this as a possible threat; however, it is far from over and far from law. - Approved
From a business standpoint, ISOs and MLSs have nothing to fear in regards to job security. No one wants to change the current system as it is. The problems all stem from complaints made by merchants who think they are paying too much in fees. We are at a point where we need to do a little self-evaluation. Many ideas are being introduced: price controls, licensing, etc.
Again, we have to look at ourselves and think about all the folks out there selling processing who knowingly take advantage of merchants by not disclosing all the proper information, including downgrades, mid- and non-qual and bill-back.
The super-ISOs need to understand this also because even some of the big boys are no better than the used car salesman when they start applying their "unique" type of fee calculations. - Guardino & Associates
I believe we will come out of this much stronger and finally understand the importance of selling a total package of products and living up to our role as financial payment advisers/consultants. Little will change when it comes to interchanges dollars and cents, but I do see change coming in the way we do business.
The whole legislative initiative and merchant lobbying campaign is about a merchant's cost for accessing bankcard payment systems. Who determines that cost? Acquirers, ISOs and MLSs.
Interchange has been mangled and spun to refer to something it is not. Interchange is what acquiring banks pay issuing banks for clearing and settlement. What is at issue here is not interchange. It is your revenue, most directly.
Between the various pieces of legislation and the merchant class actions, the acquiring industry faces considerable challenges that will need to be confronted. There are many voices here on the Forum and elsewhere that have been saying this all along.
So, will acquirers, ISOs and MLSs ultimately be the sole targets? Probably not. I'm coming to believe that, if regulation happens, and price controls end up being part of it, interchange very well could be reduced, capped - have the tar taken out of it. - Merc/David Fish
I would like to thank all members of the MLS Forum for sharing their views. My hope is that we will all come to a clearer understanding of the potential impact associated with government regulations, controls and interference.
While some isolated business practices could stand being reviewed, such as revenue-based early termination fees, reverse bill-back and the like, we should never embrace or welcome government interference.
Also, the merchant bankcard information reporting legislation recently passed into law as part of the American Housing Rescue and Foreclosure Prevention Act of 2008 (HR 3221).
The requirement was included as a revenue offset in this high-profile legislation, which includes assistance for financially-strapped homeowners and a potential bail-out for mortgage giants Fannie Mae and Freddie Mac.
Beginning Dec. 31, 2010, acquirers must report to the Internal Revenue Service the aggregate dollar amounts of credit and debit card transactions for each merchant having more than $20,000 in transactions and more than 200 transactions per year.
Reporting will have to be done by taxpayer identification number. In certain cases, acquirers may also have to subject merchants to backup withholding. The Electronic Transactions Association has actively opposed this reporting provision, but it has now switched its focus to see that our industry has maximum influence in terms of how the law will be implemented.
Will our businesses be affected by all of this? Sure they will. However, we enjoy a thriving industry that is critical and necessary to millions of merchants.
There will always be a place for street level salespeople. So, let's all stay involved as we focus on moving full steam ahead toward accomplishing our goals of creating increasingly dynamic portfolios that will stand the test of time.
Jason A. Felts is the founder, President and Chief Executive Officer of Florida-based Advanced Merchant Services Inc., a registered ISO/MSP with HSBC Bank. From its onset, AMS has placed top priority on supporting and servicing its sales partners. The company launched ISOPro Motion, its private-label training program, to provide state-of-the-art sales tools and actively promote the success and long-term development of its partners. For more information, visit www.amspartner.com, call 888-355-VISA (8472), ext. 211, or e-mail Felts at