Peter Guidi\'s Blog

Posts Tagged ‘debit cards’

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Credit Card acceptance costs expected to increase by summer 2010; is your pool of profit going down the drain?

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)

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What is Alternative Payment?

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)

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Pen or Pin: An expensive decision for the retailer. Are best things in life free, or do you get what you pay for?

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)

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Interchange fees: Obama’s next bank tax target

In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card, Uncategorized on January 22, 2010 at 9:40 pm

The law of unintended consequences is that actions of people—and especially of government—always have effects that are unanticipated or “unintended.” – Rob Norton, Fortune magazine

Beating up on the banks has a nice populist ring to it and so President Obama tailored this week’s proposed tax on banks to tap into public anger at Wall Street. Retailers’ might be concerned that Members of Congress sitting on the House Financial Services Committee confuse anger with Interchange fees and this populist anger. The White House press secretary would not discuss how a possible bank fee would fit into Obama’s fiscal year 2011, but Retailers can be sure that adding some of that $48 billion dollars in interchange fees to tax revenues will look like an appealing target.  

Meanwhile, in the debate over interchange fees, retailer’s predictions of lower interchange fees, meaning lower consumer prices, clashed with the opinions of those in the financial sectors with dueling articles in both the Wall Street Journal and New York Times.

2010 will bring high anxiety as congress schedules votes on both H.R 2695 & H.R. 2382. We can only wonder what kind of difference Scott Brown will bring to the debate. Can legislation or litigation succeed and what happens if these efforts fail, is it time to seriously consider competition? What if the Federal Government sees Interchange as a new source of General Funding, how will retailer fight for lower interchange fees if the Federal Government sees them as a source of tax revenue? (http://www.linkedin.com/in/peterguidi)

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Passing on the savings: Do lower interchange fees mean lower retailer prices for the consumer?

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)

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Interchanges fees and fairness, who’s money is it anyway?

In alternative payment, credit card, debit card, interchange, payment, Uncategorized on November 12, 2009 at 9:06 pm

Last month the House Financial Services Committee took testimony on H.R. 2382 from both the Financial Industry and representatives of the Merchants Payments Coalition which represents NACS. Both parties represented their point of view. On the retailer side, the argument remains that the retailers are unable to negotiate with the card associations for lower prices. Retailers expressed that banks and card associations are monopolistic so, congress should act to legislate and control fees or at least give retailers the ability to negotiate for lower fees and that the payment providers should be subject to Anti-Trust legal action. The key evidence being the “outrageous” swipe fees retailers pay to accept a credit card. On the other hand the Banks cried foul claiming that retailers are simply trying to use their power to gain the valuable credit card payment services without having to pay a fair price. The credit card representatives presented an argument demonstrating that interchange fees are fair, and in fact are undervalued.

This raises the question: Why would Merchants accept payment cards if the fees associated with the card are greater than the benefits? Interchange is a fee for a service that brings value to consumers and retailers and while retailers may have choices about method of payment, or even alternative payments, it turns out that promoting a method of payment is expensive and time consuming. It’s so much easier to put a sticker on the door that says” MasterCard and Visa” accepted here.  Eleanor Roosevelt once said, “It is not fair to ask of others what you are unwilling to do yourself” and therein may lay the answer. (http://www.linkedin.com/in/peterguidi)

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Waking the giant, retailers and merchant issued ACH decoupled debit cards.

In alternative payment, credit card, debit card, interchange, payment on October 29, 2009 at 4:32 pm

Theodore Bikel, who made his film debut in The African Queen, once said “All too often arrogance accompanies strength”. I suppose, he may have been speaking of Humphrey Bogart, but today, couldn’t we apply this to the constant drumbeat announcing the death of ACH Decoupled Debit from the nation’s Financial Institutions and analysts’?

Capital One’s shuttering of its decoupled debit card has raised the eyebrows of industry experts with ISO & Agent declaring; “Decoupled debit cards appear to be fading away”. Meanwhile, Javelin Strategy and Research declares; “Merchant-centric decoupled debit suffers disconnect between the merchants’ interests and their costumers”.

The Mercator Group may have it closer to true when they say “Decoupled debit is all about loyalty.”, and there lies the real disconnect. It’s not between the merchant and consumers interest, it’s between the merchant and financial institutes interest. When it comes to the consumer, we all agree that providing the best value is paramount, but who is best able to provide the consumer with the best value, the retailer at the point of purchase, or the financial institute through a method of payment? In the end, it all boils down to costs, rewards and the giant’s desire to wake. One has to wonder, if the high cost of interchange and financial institutes’ monopolistic practices have created enough discomfort to break the slumber? (http://www.linkedin.com/in/peterguidi)

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