Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023, Consumers Beware After winning the debit card replacement battle last year.

Exchange of credit cards Settlement May Cut Credit Card Interchange Fees Consumers Beware:

though they still complain the final settlement was deeply unfair to them, national retailers have now turned their guns on a much bigger prize Settlement May Cut Credit Card Interchange Fees Consumers Beware:

. In fact, it has now come to light that the US traders were seriously looking into the case, even though they were still involved in the debit queue Settlement May Cut Credit Card Interchange Fees Consumers Beware.

The massive antitrust case brought by some five million retailers and trade groups against Visa, MasterCard and thirteen of their member banks, including all of America’s largest banks, somehow escaped everyone’s attention until last week, when Forbes told us a trial date was scheduled Settlement May Cut Credit Card Interchange Fees Consumers Beware.

for September 12 this year. It is not clear exactly what the outcome will be, but it seems very likely that a settlement will be reached that will include at least a temporary reduction in interchange fees. Such a reduction could potentially be much more costly to issuers than its debit counterpart Settlement May Cut Credit Card Interchange Fees Consumers Beware.

And as we now know very well, and many of us predicted before the debit saga unfolded, any decline in interbank revenues will eventually be offset in some way, so that when the dust settles, the banks will not be the net losers. , but it will be the consumer who ultimately pays the bill Settlement May Cut Credit Card Interchange Fees Consumers Beware.

The Case Against Loan Exchange Fees Exchange of credit cards Settlement May Cut Credit Card Interchange Fees Consumers Beware:

It’s hard to believe that a case with such huge potential consequences could go unnoticed for so long, but it did. However, since we first heard about it last Thursday, we’ve learned a few details.

It turns out that since 2005, merchants including Kroger, Payless ShoeSource and Safeway have filed more than 50 lawsuits accusing Visa, MasterCard and their member banks of price fixing.

The cases have now been consolidated and will be heard by Judge John Gleeson of the US Eastern District of New York, who happens to be the same judge who in 1996 approved the settlement of a class action brought by Wal-Mart against Visa and MasterCard.

Quite apart from the billion-dollar cash settlement, the lawsuit led to lower debit interchange fees, but Visa and MasterCard increased credit interchange to offset their debit losses, according to a Deutsche Bank report cited by Forbes.

The merchants’ argument in this case, as in the previous one, is that Visa and MasterCard colluded with each other to charge much higher fees than the open market would allow. The plaintiffs seek compensation for these overcharges and to prevent the defendants from violating the rules in the future.

What can we expect

Speculation is rife about the possible outcome, but it is widely expected that the credit interchange reduction will be accompanied by a currency settlement that appears inevitable and would be split 67/33 between Visa and MasterCard Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

Dow Jones’ Andrew Johnson read Visa’s regulatory filings and found that the company had set aside $1.6 billion on top of the $2.7 billion already deposited into a “litigation escrow” account set up primarily to settle a commercial lawsuit. . Jones quotes an analyst who expects the total cost of a potential settlement for Visa and MasterCard to be “$5 billion to $15 billion based on industry reviews.”

But the brunt of any interchange reduction will not be borne by Visa and MasterCard, but by the banks that issue cards bearing their logos, which actually collect the lion’s share of interchange fees. These losses can be huge. A Deutsche Bank report cited by Forbes estimated that a 75 percent fee cut would cost US Bancorp $1.2 billion in 2012 revenue, a loss four times greater than the loss caused by the Durbin amendment.

Under that scenario, JPMorgan Chase would lose $5.38 billion, five times the bank’s debit loss, and Bank of America’s loss would be $3.68 billion, nearly double the cost in Durbin Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

Does anyone believe that issuers will quietly accept such huge losses? If this were not the case, as experience (not to mention common sense) tells us, what would their reaction be? The aftermath of Durbin can be used as a blueprint for the potential course of action banks will take, but this time the scale will be much larger Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

Takeaway

Durbin’s amendment to the Dodd-Frank financial overhaul legislation of 2010 led to the Federal Reserve’s decision last year to reduce debit interchange fees to an average of $0.24 per transaction, translating into a revenue transfer of approximately $7 billion annually ( estimates vary , but this is ours) from card issuers to retailers. The reaction of the banks was fully predictable and in fact was predicted on this blog and elsewherr.

. As of today, free checking accounts have all but disappeared and various bank fees are appearing or increasing. The Boston Fed newspaper told us a few months ago that debit reform has hit young, less-educated and lower-income consumers the hardest. The result of the reduction in interbank credit would not be different, only the scale would be much larger.

Image credit: 24company.ru.

Learn how to reduce card acceptance costs

Card Acceptance Kit Learn how to accept credit and debit cards for the lowest processing costs. The card acceptance kit includes a video and an e-book:

Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
E-book – Guide to accepting payment cards (19 pages) Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

By Bruce D. Sokler, Robert G. Kidwell, Farrah Short

In recent years, federal antitrust authorities and businesses that accept payment cards have waged a slow war against payment card fees and the card network rules that protect them. Antitrust battles in the payment card industry are nothing new, dating back to antitrust lawsuits against predecessor Visa in the early 1970s.

However, more recent developments have begun to provide tools for card-accepting businesses (referred to as “merchants” in the card world) to slowly chip away at the impact of these fees on their bottom lines. This progress recently took a big step back Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

In June 2016, New York’s Second Circuit Court of Appeals struck down a landmark settlement between the payment card industry and merchants, including $7.3 billion in damages and a controversial release of claims against VISA and MasterCard, in light of diverging interests among merchants in the class.

Additionally, the Second Circuit consulted on an appeal of the Department of Justice’s (“DOJ”) antitrust victory against American Express, and many observers believed that the oral argument revealed considerable skepticism about the government’s case. As a result, now is a good time to take a quick look at the current state and current state of business when it comes to accepting payment cards Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023

What’s the problem?

The payment card industry, merchants who accept payment cards (ie credit and debit cards) and consumers who use payment cards engage in a delicate balance. Every player in the market benefits from the existence of payment cards, even if their motivations differ.

Businesses hate payment card processing fees. That’s why some require a minimum purchase to use a credit card (for example, “we don’t accept credit cards for purchases under $10”), and why a taxi driver can swipe your card through a Square reader on their smartphone rather than through a cab-mounted card terminal.

This is why Costco now only accepts Visa credit cards and why some businesses do not take American Express. Business owners often view payment card processing fees (so-called “interchange fees”) as a tax for which they receive little or nothing. Businesses also hate that these fees help fund the “rewards” that card issuers offer their cardholders Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

But business owners benefit from the acceptance of payment cards. From cups of coffee to heart surgery, consumers are increasingly using payment cards and using less cash. A business that does not accept payment cards would probably lose some of its customers who prefer to shop with plastic. Some businesses even rely on the installment finance feature of credit cards to allow their customers to make expensive purchases that they would not otherwise make. And studies suggest that consumers will spend more money at a merchant when paying with a credit card than if they were paying with cash.

Interchange fees are also the lifeblood of the payment card industry, which consists primarily of payment card networks (Visa, MasterCard, American Express and Discover) and payment card issuers (generally referred to as “banks”, although not all of them fit the traditional definition of a bank – and in in the case of American Express and Discover, each acts as both an issuer and a network) Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

The payment card industry is therefore motivated to increase consumer use of payment cards and is very effective at doing so. Consumers are offered everything from airline miles and travel assistance to preferred theater tickets and “cash back” – which, in economic terms, is simply sharing a portion of the interchange fees paid by card-accepting businesses with the consumer.

Consumers benefit from the existence of a system of widely accepted payment cards and the advantages and benefits that these cards provide them. But they also absorb the costs of this system, which are reflected in the prices of the goods and services they buy – even in the case of purchases that are not made with a card Settlement May Cut Credit Card Interchange Fees Consumers Beware Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

Why might there be antitrust problems?

A competitive market, free from conspiracy, monopoly or anti-competitive exercise of market power, will be self-regulating. Prices, quantities and terms of sale will be dictated by market forces. There is no need for antitrust enforcement in such a market Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

But purely competitive markets are rare. Most markets are prone to market failure, whereby one or more market players are able to inefficiently allocate resources to themselves that market forces would otherwise allocate to someone else. The goal of modern antitrust law is to correct market failures Settlement May Cut Credit Card Interchange Fees Consumers Beware.

In the payment card market, different players compete at different levels. Card networks compete with each other (to some extent) to increase the number of banks that issue their cards and compete to convince merchants to accept their cards. Banks compete with each other to issue the most attractive cards for consumers. This is often referred to as a “two-sided” or “multi-sided” market. The competitive dynamics in such a market are complex, and it can be difficult to determine whether there is a market failure requiring antitrust action—and at what level of the market Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

Despite this complexity, traders have argued for decades that there is a market failure: that interchange fees are too high and that the rules put in place by the networks are designed to “rig the game” to keep those fees artificially high. Additionally, card network rules prevent merchants from directing consumers to alternatives that are either better for consumers, better for retailers, or both. Through a series of lawsuits over many years, merchants (and the Justice Department acting on their behalf) have had some success challenging these rules Settlement May Cut Credit Card Interchange Fees Consumers Beware.

A number of antitrust cases have dealt with payment card issues

Visa and MasterCard are separate entities that each began as nonprofit membership joint ventures with financial institutions—usually banks—as members. Although considered competitors, the two companies often cooperated and generally set similar policies and card fees. In the beginning, banks had to “choose a side” and issue MasterCard or Visa payment cards.

But the association relaxed those rules in the 1970s after the Justice Department refused to give them its blessing under antitrust laws, and since then member banks have been allowed to use both networks.

Fees may also depend on several factors, including required and negotiable costs through the payment processor, card network and card issuer. You will need to track monthly fees to determine which forms of payment are sustainable for your business to accept Settlement May Cut Credit Card Interchange Fees Consumers Beware Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

But how much money will you have to account for in fees? And how do the different fees differ? We’ll walk you through basic credit card fees and offer some tips Settlement May Cut Credit Card Interchange Fees Consumers Beware Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

Tip
To accept credit cards, you’ll need to set up a merchant account for your business, the exact type of which depends on whether you need it for retail, mobile or e-commerce.

What types of fees and costs are associated with credit cards?
Credit card acceptance fees may vary from business to business depending on industry, location, card type and number of transactions.

When accepting credit cards, you should be aware of fees from your payment processor (payment processing fees), card network (rating fees) and card issuer (interchange fees). Other mandatory fees include an acquirer processing fee, an acquirer fixed network fee, a kilobyte access fee, and a network access and brand usage fee Settlement May Cut Credit Card Interchange Fees Consumers Beware Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

For small businesses with annual credit card transactions of $10,000 to $250,000, the average cost to process these payments is currently 2.87% to 4.35%. However, additional fees (either required or added by your payment processing provider) could increase your rates above average Settlement May Cut Credit Card Interchange Fees Consumers Beware.

Who decides the credit card processing fees?

There are three primary services that charge you when dealing with credit card payments: the payment processor, the card network, and the card issuer Settlement May Cut Credit Card Interchange Fees Consumers Beware.

Payment processor
A payment processor is a financial institution such as Chase that completes the credit card transaction. Most merchants work with a third-party company that facilitates the process for the financial institution, such as Leaders Merchant Services.

Tip
To learn about some specific examples of payment processors, read our Merchant One review or our Square review.

The best credit card processing providers can also offer you facilities for brick-and-mortar and online transactions. This equipment includes point-of-sale (POS) systems and credit card terminals. In addition, you also have access to payment software systems such as virtual terminals, contactless payments via RFID (Apple Pay, Google Pay), mobile payments, e-commerce shopping carts and payment gateways Settlement May Cut Credit Card Interchange Fees Consumers Beware Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

Payment processors charge a percentage of each credit or debit card transaction plus a flat fee.

Card network
Card networks include American Express, Discover, Mastercard and Visa. They facilitate credit and debit transactions between the card issuer and the merchant. In addition, card networks work with credit and debit card issuers.

Here are the average transaction costs from the top four credit card networks Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023:

American Express: 1.58% to 3.3%
Discover: 1.53% to 2.53%
Mastercard: 1.29% to 2.64%
Visa: 1.29% to 2.54%
Card networks also determine where credit and debit cards are accepted. While credit cards previously had variable acceptance rates, the major credit card networks now have relatively similar rates, with all four major credit card networks accepting more than 10 million locations in the US Settlement May Cut Credit Card Interchange Fees Consumers Beware Settlement May Cut Credit Card Interchange Fees Consumers Beware 2023.

The card networks are also responsible for any credit or debit card benefits or rewards.

Card issuer
The card issuer makes money by charging the business owner a percentage of each transaction plus a flat fee (similar to payment processing providers). Additionally, card issuers have the final say on whether a card transaction is approved or declined.

Credit card processing fees
The average credit card processing fee per transaction is 1.3% to 3.5%. The fees charged by the company will depend on which payment company you choose (American Express, Discover, Mastercard or Visa), the merchant category code (MCC) and the type of credit card.

Did you know?
A debit card transaction usually costs less to a business than a credit card transaction. Debit cards usually have their own pricing structure and may be listed separately from credit card fees Settlement May Cut Credit Card Interchange Fees Consumers Beware.

The table below shows interchange and appraisal fees, but not processing fees, as they vary widely by credit card provider, card type and MCC Settlement May Cut Credit Card Interchange Fees Consumers Beware.

   Sources