Posts Tagged ‘ACH’
ACH, ach. loyalty, alternative payment, Bank Tax, card networks, credit card fee, credit cards, debit cards, decoupled, Electronic Payments Coalition, GAO, H.R. 2382, House Financial Services Committee, HR 232, loyalty, Mastercard, Merchants Payments Coalition, PCI PED, Signature Debit, Uncategorized
In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card on March 10, 2010 at 6:59 pm
Close on the heels of Barney Frank’s decision not to pursue HR 2382, and as the industry plots its next step, merchants might want to consider the words of Canada’s Finance Minister Jim Flaherty. The Finance Minister is quoted as saying; “(he) would exercise the new powers (sic. impose card use fees) if the industry failed to comply with a proposed VOLUNTARY code of conduct. Merchants’ should ask themselves if this is the type of government intervention that is appropriate in the United States? Merchants might ask if they are opening the chicken coop to the wolf. If the government can regulate interchange fees, what else could they control? More importantly; who will determine what a “fair price” is and will merchants be pleased with a “regulated result”? What if the Government chooses to raise fees rather than lower fees?
One way to evaluate this question is to consider how merchants feel about interchange fees in countries with government regulation? I read a blog about one consumer’s experience with credit card fees in New Zealand and Australia. He reports that most merchants specifically asked if he wanted to pay using signature or PIN? One restaurant is reported to have a sign stating “$15 min.” explaining that credit card fees were too high to allow purchases under $15 using a credit card. Imagine that? Even with card fees at 0.55%, merchants reported interchange fees are too high.
The current political environment is ripe for all sorts of government intervention. Government sponsored higher interchange fees are possible, particularly if interchange is seen a source of tax revenue. The merchant community could find that advocating interchange regulation might lend support to adverse government action in areas like Motor Fuels, Tobacco, Labor and Healthcare and other issues where they seek less, not more, government involvement.
(http://www.linkedin.com/in/peterguidi)
ACH, ach. loyalty, alternative payment, Bank Tax, card networks, credit card fee, debit cards, Electronic Payments Coalition, GAO, H.R. 2382, interchange fee, loyalty, Mastercard, Merchants Payments Coalition, PCI PED, PIN Debit, Signature Debit, Uncategorized
In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card on March 5, 2010 at 1:43 pm
The epic battle between the Merchant Payments Coalition and the Electronic Payments Coalition heated up again this week when NACS spokesman Jeff Lenard was quoted in the America Public Media online journal “Marketplace” saying “Welcome to the war on cash,” in response to increasing debit card transaction fees. Adding; “that the credit card companies have to find new revenue sources” as a result of The Credit Card Reform Act, and that “one of those is going to be interchange”.
Meanwhile the “War of Words over Card Fees” continued as the Electronic Payments Coalition (EPC) reported that Senator Arlen Specter (D-PA) has indicated to Pennsylvania banks that he will introduce legislation which will mirror H.R. 3282. The EPC says that the “legislation will potentially shift the cost of accepting credit and debit cards onto consumers”. Frank Pinto, CEO/President of the Pennsylvania Association of Community Bankers goes on to say “When retailers accept cards in their stores, they receive profits, customers, guaranteed payment, and the golden key to e-commerce–and they shouldn’t have their customers pay for this cost of doing business.”
Rising Signature Debit Transaction Fees are the latest cause for merchant concern. Consumer behavior is changing as debit becomes the preferred “method of payment”. Card Issuers are competing with each other for the consumers business. One result is that the Issuers and Card Associations are promoting the use of Signature Debit over PIN Debit because the signature debit interchange fee is higher than that of PIN debit which funds the reward program. The justification for the different fees is that the financial risks associated with the two types of transactions are different; Signature being more risky than PIN and therefore meriting higher fees. The paradox is that the industry is promoting the use of the riskier transaction assumedly because it is more profitable. The reality is that debit fees are approaching credit card fees, and that the two tiered debit fee is probably going to be phased out in favor of the one higher interchange fee.
Sun Tzu the historical military strategist is well known to have said “Know your enemy”. Another of his lesser known quotes is “opportunities multiply as they are seized”.
The merchant community could heed his advice when thinking about payment. The payment industry has noticed the consumer’s preference for debit. As a result the card issuers are offering richer debit rewards programs as they compete for the consumers business. Merchants can expect to see the cost for these consumer transactions to rise as these programs grow in popularity. Merchants must ask themselves, has the time for war arrived and is the “opportunity” competition?
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ACH, ach. loyalty, alternative payment, Bank Tax, credit card fee, credit cards, House Financial Services Committee, HR 232, interchange fee, loyalty, Mastercard, payment, PCI PED, PIN Debit, Signature Debit, two sided market
In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card on March 1, 2010 at 7:25 pm
Alexander Woollcott said “Many of us spend half our time wishing for things we could have if we didn’t spend half our time wishing.” The same might be true when considering the high cost of card acceptance and the path to lower Interchange fees.
With eight words, “It is not on our agenda this year,” Barney Frank ended the speculation over H.R. 2382, the Credit Card Interchange Fees Act legislation aimed at regulating interchange fees. Representative Peter Welch (D-Vt.) explained saying “He (Frank) doesn’t want to necessarily spend time moving things here when there’s been so little response in the Senate,” Merchants are left exhaling with the slim hope that U.S. Senator Arlen Specter (D-Pa.) may introduce a bill that seeks to limit interchange fees. It now seems fair to say that the effort to use legislation to control interchange has failed, at least for 2010.
Merchants had pinned their hope for reform on The Merchants Payments Collation’s three pronged strategy, legislation, litigation and competition, to lower card acceptance fees. The question now: is competition the only option in the battle over interchange?
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ACH, ach. loyalty, alternative payment, card networks, credit card fee, debit cards, decoupled, H.R. 2382, House Financial Services Committee, interchange fee, loyalty, Mastercard, Merchants Payments Coalition, payment, Signature Debit, two sided market
In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card, Uncategorized on February 23, 2010 at 6:16 pm
David Mamet said “The surprise is half the battle. Many things are half the battle, losing is half the battle. Let’s think about what’s the whole battle.”
According to NACS, in 2008, convenience stores sold approximately $414 billion in gasoline sales with the average store selling 118,526 gallons per month. On Monday, (2/23/2010) Yahoo reported the national average for the price of gas at $2.68 per gallon up $.73.1 cents from the same time last year. Fred Rozell, Retail Pricing Director at Oil Price Information Service, is predicting a high of $3.25 for this summer. If Fred is correct, then the retail price on gasoline will have increased $1.33 cents per gallon from the summer of 2009. If that isn’t painful enough, look at the corresponding increase in credit card fees of a little over three cents ($.033) per gallon.
Cause/effect: If Fred is correct, the average retailer will pay an additional four thousand dollars ($4,000!) in card acceptance costs totaling nearly $9630.009 per month this summer. The impact of these increases will significantly reduce margins on gasoline sales. Is there any doubt this is happening? A quick look at the gasoline balance sheet at $2.65 per gallon shows that retailers are already half way there!
Where’s the surprise? This summer won’t likely be as painful to the retailer’s pocketbook as the summer of 2005. The difference?; Total demand remains low as the economy continues to suffer while people keep their cars, boat’s and RV’s in the driveway. Without a big increase in demand it’s unlikely that prices will reach the $4.00 range. Reflecting back just a few years ago to when retailers experienced this trend and eventually saw profits disappear the call for change was sounded.
Robert Shapiro, author of “The Costs of “Charging It” in America: Assessing the Economic Impact of Interchange Fees for Credit Card and Debit Card Transactions” correctly identifies the “Whole Battle” when he says, “credit companies and banks compete with each other by offering large rewards that are financed by fees”, “The competition is driving fees up rather than driving fees down.”
The Whole Battle is asking how the retailer can compete with Financial Institutions for the consumers “Method of Payment”. This summer will mark another battle won or lost, how will you fight back?
(http://www.linkedin.com/in/peterguidi)
ACH, ach. loyalty, alternative payment, card networks, credit cards, debit cards, decoupled, interchange fee, Merchants Payments Coalition
In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card on February 15, 2010 at 6:33 pm
The payments landscape is constantly changing with new technology and applications regularly emerging trumpeted as the latest and greatest “Alternative Payment” system. With all of this change it might be helpful if we define “Alternative Payment”. Perhaps the challenge is to define “Traditional Payment” and say that everything else is Alternative Payment, but somehow that does not satisfy the question.
There are a two ways to look at this question; the practical application and the academic question. Practically speaking, in the current payment landscape any payment system that eliminates card associations from the transaction is an alternative system. Academically, the question is more complicated and reaches to the Financial Institution. To satisfy both the practical and academic definitions, “Alternative Payment” could be defined as: payment methods that do not adhere to the issuer-network-acquirer model and those that do not utilize card association networks or, where the liability of payment is held by an issuer that is different than the FI holding the consumers “dda”.
Do “E-Wallets” qualify? What about merchant issued debit cards? ACH Decoupled Debit is an example of an “alternative payment system”, but does it meet the criteria? The result of an ACH decoupled debit transaction is the disintermediation of the Financial Institution holding the consumers dda from the card based transaction. What if we consider EFT networks, or the ACH to be a part of the FI, then where do we draw the line? Perhaps any payment where the consumer does not directly enter their credit/debit card number at check-out qualifies as an “alternative payment”. Google Checkout or PayPal transactions that are funded by a Credit Card do not appear to be “alternative payment. National Payment Card, BillMeLater and eBillMe clearly consider themselves alternative payment. What is Alternative Payment? What do you think?
(http://www.linkedin.com/in/peterguidi)
ACH, ach. loyalty, alternative payment, Bank Tax, card networks, credit card fee, credit cards, debit cards, House Financial Services Committee, interchange fee, loyalty, Mastercard, Merchants Payments Coalition, MPC, PCI PED, PIN Debit, Signature Debit, Uncategorized
In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card on February 3, 2010 at 9:49 pm
Debit cards are making news as the consumers preferred method of payment. Financial industry analysts predicted that debit cards would overtake credit cards and would start a change in the loyalty offering and other types of card incentives from credit to debit cards. It was never predicted that it would happen so quickly with such a tidal-wave type of shift. One major transaction processor, revealed that membership in credit card reward programs has declined from 71% of the consumers surveyed in 2008 to 67% this year. While at the same time, the participation in the debit reward programs has increased markedly from 34% of consumers surveyed in 2008 to 45% this year. This trend is expected to continue as consumers struggling under the load of credit card debt move to debit.
PCI PED deadlines appear like a fog bank on the horizon, big, dark, impenetrable and getting closer. Retailers are faced with the decision to either upgrade from older, no-secure PIN pads to PCI PED approved pads at significant cost, or to accept all cards as “signature” at the pump paying the higher “signature transaction fee”.
Meanwhile, banks are sending a conflicting message as retailers are now faced with PIN debit transaction fees that are nearly equal to signature debit transaction fees. Adding injury to insult, Financial Institutions are offering consumers aggressive “debit reward” programs based on consumers’ choosing ‘Signature” rather than PIN. Rewarding the consumer for using signature debit is essentially bribing the consumer to use a more expensive form of payment. One major bank recently released its “Swipe & Sign” program offering consumers a $10.00 gift certificate from Amazon.com for one “signature debit transaction” at a grocery store. The result is retailers are paying for more expensive Signature based debit transactions. This is a “dammed if you do, dammed if you don’t” situation.
Retailers are wondering if the upgrading to PCI PED pin pads is worth the expense. They face a situation where the lower cost PIN debit rate is going away at the very same time banks are rewarding consumers to use signature debit. It appears that the banks are saying “no” to PCI PED upgrades.
(http://www.linkedin.com/in/peterguidi)
ACH, ach. loyalty, alternative payment, card networks, credit cards, decoupled
In alternative payment, credit card, debit card, interchange, loyalty, payment, Payment card, Uncategorized on December 16, 2009 at 8:40 pm
Merchant funded rewards drive significant increases in key metrics across the full customer lifecycle. Merchant driven programs can drive a substantial return by delivering significant increases in key metrics from consumer acquisition to engagement and retention driving higher customer lifetime value.
Convenience/Petroleum retailers are well positioned to leverage merchant funded reward programs based on price roll back and funded through the allotment of interchange fees to consumer rewards through the introduction of alternative payment. ROI from these programs comes almost exclusively from the value members see in the program. Numerous studies demonstrate that consumers will make decisions on where to shop for gas with just a few cents of difference. Funding price discounts on gas with no offsetting savings represents a significant percentage of margins, making these types of programs expensive and difficult to maintain. The introduction of alternative ACH payment to this schema allows the retailer to influence both the consumer’s purchasing and payment decisions when choosing price roll back that is based on payment type. The ROI is generated because the program drives up all key metrics. The result is that the retailer sells more gallons to the group of consumers in the program. Results indicate that 20% of the consumers engaged in this type of program will double the number of gallons purchased from the retailer. With effective implementation and ongoing execution of the program, Merchants can expect to see meaningful increases both in gross sales and margin as a result of merchant funded rewards based on price roll back at the pump. (http://www.linkedin.com/in/peterguidi)
ACH, ach. loyalty, alternative payment, card networks, credit card fee, credit cards, debit cards, decoupled, H.R. 2382, House Financial Services Committee, HR 232, Merchants Payments Coalition, MPC, payment, two sided market
In alternative payment, credit card, debit card, interchange, payment, Payment card, Uncategorized on December 9, 2009 at 7:49 pm
Oscar Wilde once said “There are many things that we would throw away if we were not afraid that others might pick them up”. The same may be true of interchange fees and margins.
This month the Competitive Enterprise Institute (CEI) published a report called “Payment Card Networks under Assault” which makes the case that capping interchange fees will hurt consumers, charities, community banks and credit unions. One of their primary claims is that retailers would not pass on savings from lower interchange fees to consumers. The CEI points to the GAO report which concluded that “consumers may not experience lower prices and retailers could pocket the entire windfall resulting from any reduction in interchange fees”. Meanwhile, the Consumers for Competitive Choice (C4CC) called for interchange fee reform stating that reform would spur job growth, and as expressed by one President of a 90 store chain who is paying nearly 3.5 million dollars in interchange fees saying: “lower fees would mean lower costs for consumers”.
Would a retailer pass on savings to consumers if interchange fees where lowered? Here’s another question: Will retailers use discounts to compete with credit card companies for the consumer’s method of payment? And if they do, what methods are available; price roll back for ACH or cash credit pricing? As the ball goes back and forth on this issue, both sides need to be cognizant that Congress is looking for solutions that benefit the consumer. Unless the retailers can demonstrate that they are willing to provide lower retail prices to consumers for less expensive forms of payment, why should Congress believe that consumers will benefit from a cap on interchange fees? (http://www.linkedin.com/in/peterguidi)
ACH, card networks, credit cards, GAO, House Financial Services Committee, HR 232, interchange fee, Mastercard, Merchants Payments Coalition, MPC, Visa
In alternative payment, credit card, debit card, interchange, payment, Payment card, Uncategorized on November 27, 2009 at 6:38 pm
Market Power gives a firm the ability to employ anti-competitive tactics like predatory pricing without losing customers to competitors. During testimony on H.R. 2382, the Representative of The Merchants Payment Coalition stated that “there is no competitive market for interchange fees – just naked price fixing”. On the other side, the Representative from The Electronic Payments Coalition called interchange an “important element(s) of the successful, competitive banking experience” adding that “interchange reflects a merchant’s fair share of the costs” (sic.) of the system.
Last weeks GAO report found that Merchants’ are in fact paying more to accept credit cards, but also added that “network competition in the credit card market may be contributing to rising interchange rates”.
Two-sided markets exhibit “Network Effects” when two groups of users are attracted to each other, in this case retailers who accept payment and consumers who make payment. “Cross- Side Network Effects” occur when enough users are attracted to one side that the other side will pay dearly to reach them. In this case, retailers are the “money side” and they pay to accept cards as a form of payment, while consumers are the “subsidy side” who receive incentives to use the cards as a form of payment. Linking these two groups together is the primary value of the payment platform creating powerful Cross-Side Effects.
Retailers’ accept cards as payment because so many consumers use cards for payment. Competition between card issuing banks to capture consumers, and networks to capture banks is intense as evidenced by the multiple offers for high earning rewards credit and debit products and their users. Retailers ultimately see the cost of this competition reflected in rising interchange fees, particularly the higher rate fees for reward based programs. The question is; does this competition between networks and financial institutions for the consumers’ payment business justify the increasing rates paid by retailers to accept these forms of payment or does it constitute a monopolistic example of a market failure?
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ACH, alternative payment, decoupled, H.R. 2382, interchange fee, two sided market
In alternative payment, credit card, debit card, interchange, payment, Payment card, Uncategorized on November 18, 2009 at 9:44 pm
The payment network/platform is a two-sided market that matches users from two different groups enabling them to do business; in this case, consumers carrying cards, and retailers accepting cards. Two-Sided Market theory models the pricing and demand of platform services which involve interactions between two distinct groups. Typically, two-sided markets have a “subsidy side” that is a high volume group of users who are valued by the “money side”, or the other user group. In the retail industry these two groups are the merchants and consumers, where the merchant is the “money side” because they value the large group of consumers carrying payment cards. Two-Sided economics explains the allocation of prices between the two groups. The key ingredient is that at least one side of the platform needs to deeply care about the number of participants on the other side.
The goal of a platform operator (Visa/Mastercard) is to generate “cross-side” network effect. If a platform can attract enough users, the money-side will pay handsomely to reach them. This is what happens in the retailer industry with credit cards and why the interchange fee keeps going up. Interchange does not represent or reflect any specific operational cost being incurred by the network; rather it is a reflection on the value that the retailer places on access to the card user. http://www.linkedin.com/in/peterguidi
