Jan 24, 2007

Tipping Points for the Payments Industry

Digital Transactions has published an article titled The Corrosive Siege Over Signature-Card Interchange, as part 3 of its series on 10 Tipping Points for the Payments Industry. The conclusion on interchange?
"Prognosis: Ironically, the banking industry’s own inability to calculate its costs and communicate its value propositions—justifying its pricing—seems bound to push the payments business to an unfortunate conclusion—including, perhaps, imposition of precipitous drops in rates.

"One solution: Push Visa and MasterCard to allow surcharges on expensive signature-card transactions in the U.S. (as they do in every other one of their five global regions). If merchants don’t see the value or can’t bear the costs of particular cards in particular markets, they can ask their customers to pay the freight; if the value is there, one or both of them should be willing to pay the costs. A wild card: MasterCard’s new owners will undoubtedly push this new public company to settle early and often on these interchange lawsuits in order to get the negative overhang put to bed; why not opt for a constructive settlement and lead the industry to a more balanced and rational set of interchange rates that fit the specific market, product, and transactional cost circumstances?"
It's inevitable that merchants will end up paying different fees to accept different cards. Right now it's purely cost based (for example, debit card transactions often have less interchange than credit cards). In the future, the payment brand people are certainly going to focus on creating new value for merchants so that new generation cards can be charged at higher rates.

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