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Fox
Joined: 04 Mar 2009
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 Posted: Tue Jan 05, 2010 6:41 am Post subject: VISA gained customers by raising it's fees |
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Article here.
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Every day, millions of Americans stand at store checkout counters and make a seemingly random decision: after swiping their debit card, they choose whether to punch in a code, or to sign their name.
It is a pointless distinction to most consumers, since the price is the same either way. But behind the scenes, billions of dollars are at stake.
When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.
The difference is so large that Costco will not allow you to sign for your debit purchase in its checkout lines. Wal-Mart and Home Depot steer customers to use a PIN, the debit card norm outside the United States.
Despite all this, signature debit cards dominate debit use in this country, accounting for 61 percent of all such transactions, even though PIN debit cards are less expensive and less vulnerable to fraud.
How this came to be is largely a result of a successful if controversial strategy hatched decades ago by Visa, the dominant payment network for credit and debit cards. It is an approach that has benefited Visa and the nation�s banks at the expense of merchants and, some argue, consumers.
Competition, of course, usually forces prices lower. But for payment networks like Visa and MasterCard, competition in the card business is more about winning over banks that actually issue the cards than consumers who use them. Visa and MasterCard set the fees that merchants must pay the cardholder�s bank. And higher fees mean higher profits for banks, even if it means that merchants shift the cost to consumers.
Seizing on this odd twist, Visa enticed banks to embrace signature debit � the higher-priced method of handling debit cards � and turned over the fees to banks as an incentive to issue more Visa cards. At least initially, MasterCard and other rivals promoted PIN debit instead.
As debit cards became the preferred plastic in American wallets, Visa has turned its attention to PIN debit too and increased its market share even more. And it has succeeded � not by lowering the fees that merchants pay, but often by pushing them up, making its bank customers happier.
In an effort to catch up, MasterCard and other rivals eventually raised fees on debit cards too, sometimes higher than Visa, to try to woo bank customers back.
�What we witnessed was truly a perverse form of competition,� said Ronald Congemi, the former chief executive of Star Systems, one of the regional PIN-based networks that has struggled to compete with Visa. �They competed on the basis of raising prices. What other industry do you know that gets away with that?�
Visa has managed to dominate the debit landscape despite more than a decade of litigation and antitrust investigations into high fees and anticompetitive behavior, including a settlement in 2003 in which Visa paid $2 billion that some predicted would inject more competition into the debit industry.
Yet today, Visa has a commanding lead in signature debit in the United States, with a 73 percent share. Its share of the domestic PIN debit market is smaller but growing, at 42 percent, making Visa the biggest PIN network, according to The Nilson Report, an industry newsletter.
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More at link. |
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Fox
Joined: 04 Mar 2009
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| Posted: Tue Jan 05, 2010 6:45 am Post subject: |
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This practice should be illegal. I'm not saying credit companies should not be able to charge what they want, but rather that the user of the card should be legally required to pay 100% of the costs associated with the card, which would include both the debit transaction fees talked about in the article first, and the interchange fees mentioned later on. This won't change the actual cost of the credit being used, but it will:
1) Allow the consumer to view exactly what the real costs of card usage are in general (right now many consumers have no idea, and how could they be expected to, given credit companies have deliberately worked to hide them?).
2) Allow the consumer to see the cost disparities between things like PIN usage and signing, as well as the exact interchange fee being charged in each case (creating an incentive for credit companies to reduce these transactional fees -- rather than an incentive to increase them -- if they desire a thriving customer base).
3) Prevent the cost of card usage from raising prices in general, and thus affecting people who don't use cards.
Of course the credit industry would be up in arms about it, as hiding their fees in this way allows them to bring in substantially more money without improving their services at all, but that's tough luck. |
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pkang0202
Joined: 09 Mar 2007
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| Posted: Tue Jan 05, 2010 8:02 am Post subject: |
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Stores don't pay. Customers DO pay.
The cost of the debit/credit card transactions get passed down to the customer.
A good example is in Korea, where you go to Yongsan or some other place and they'll give you a cheaper price if you pay with cash. |
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Fox
Joined: 04 Mar 2009
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| Posted: Tue Jan 05, 2010 8:55 am Post subject: |
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| pkang0202 wrote: |
Stores don't pay. Customers DO pay.
The cost of the debit/credit card transactions get passed down to the customer. |
Stores pay and pass the price along to customers. In America, this generally equates to flat out higher prices on all things due to how often cards are used. Many people have no idea this is happening.
| pkang0202 wrote: |
| A good example is in Korea, where you go to Yongsan or some other place and they'll give you a cheaper price if you pay with cash. |
In my town of 태백, on the other hand, this doesn't happen. Yongsan and Technomart do this because, due to the competition of the area (tons of very similar vendors in a very small area), they're trying to keep their prices as low as possible, and that tiny discount could be the deciding factor in some customers eyes. Needless to say, most businesses are not in a similar position. |
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pkang0202
Joined: 09 Mar 2007
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| Posted: Tue Jan 05, 2010 7:31 pm Post subject: |
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| Fox wrote: |
| pkang0202 wrote: |
Stores don't pay. Customers DO pay.
The cost of the debit/credit card transactions get passed down to the customer. |
Stores pay and pass the price along to customers. In America, this generally equates to flat out higher prices on all things due to how often cards are used. Many people have no idea this is happening.
| pkang0202 wrote: |
| A good example is in Korea, where you go to Yongsan or some other place and they'll give you a cheaper price if you pay with cash. |
In my town of 태백, on the other hand, this doesn't happen. Yongsan and Technomart do this because, due to the competition of the area (tons of very similar vendors in a very small area), they're trying to keep their prices as low as possible, and that tiny discount could be the deciding factor in some customers eyes. Needless to say, most businesses are not in a similar position. |
The different between electronic PIN payment and Credit Card payment is in fraud protection. A business owner will still get money from the credit card company if purchases were made with a fraudulent credit card.
PIN number transactions, on the other hand, are different. The onus is on the business owner to recover those funds.
PIN number transactions are not instantaneous. They still require a day or 2 to clear through the bank. The system merely checks your available balance, and if its good, it approves the transaction. What if someone only had $100 in their account, and buys $300 worth of goods? they can do this by going to store #1, buy $100 worth of stuff, immediately go to Store #2, buy $100 worth of stuff, etc...
When everything tries to clear the next day, the transactions get rejected. Overdraft protection only covers you for a couple items at most. The bank sends a letter to the business that says, "Hey, there is no money in this person's account. sorry."
Now, it is up to the business owner to either eat the bad transaction, or try to recover those funds from the customer.
With a credit card, no worries.
Also, how do you figure flat out higher prices on all things? American consumers already enjoy the lowest prices on goods. The price of everything gets passed along to the consumer. Credit card machines are just a cost of doing business. They are no different than a $2000 cash register with fancy lasers, TV's, and receipt printer.
VISA provides a service, and business pay for that service. Businesses don't like it, then they can NOT accept VISA and accept Mastercard, AmEx, or Discover instead. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Tue Jan 05, 2010 7:35 pm Post subject: |
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| Fox wrote: |
| pkang0202 wrote: |
Stores don't pay. Customers DO pay.
The cost of the debit/credit card transactions get passed down to the customer. |
Stores pay and pass the price along to customers. In America, this generally equates to flat out higher prices on all things due to how often cards are used. Many people have no idea this is happening. |
They should. Do they think credit card companies have no overhead or expenses? Any vendor will tell them, if asked, how the credit card companies make their money. |
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Fox
Joined: 04 Mar 2009
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| Posted: Tue Jan 05, 2010 7:42 pm Post subject: |
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| pkang0202 wrote: |
| Fox wrote: |
| pkang0202 wrote: |
Stores don't pay. Customers DO pay.
The cost of the debit/credit card transactions get passed down to the customer. |
Stores pay and pass the price along to customers. In America, this generally equates to flat out higher prices on all things due to how often cards are used. Many people have no idea this is happening.
| pkang0202 wrote: |
| A good example is in Korea, where you go to Yongsan or some other place and they'll give you a cheaper price if you pay with cash. |
In my town of 태백, on the other hand, this doesn't happen. Yongsan and Technomart do this because, due to the competition of the area (tons of very similar vendors in a very small area), they're trying to keep their prices as low as possible, and that tiny discount could be the deciding factor in some customers eyes. Needless to say, most businesses are not in a similar position. |
The different between electronic PIN payment and Credit Card payment is in fraud protection. A business owner will still get money from the credit card company if purchases were made with a fraudulent credit card.
PIN number transactions, on the other hand, are different. The onus is on the business owner to recover those funds.
PIN number transactions are not instantaneous. They still require a day or 2 to clear through the bank. The system merely checks your available balance, and if its good, it approves the transaction. What if someone only had $100 in their account, and buys $300 worth of goods? they can do this by going to store #1, buy $100 worth of stuff, immediately go to Store #2, buy $100 worth of stuff, etc...
When everything tries to clear the next day, the transactions get rejected. Overdraft protection only covers you for a couple items at most. The bank sends a letter to the business that says, "Hey, there is no money in this person's account. sorry."
Now, it is up to the business owner to either eat the bad transaction, or try to recover those funds from the customer.
With a credit card, no worries. |
None of this is relevent to my proposal. You're defending the difference between these two types of transactions having a different cost. That's fine; nothing I've said alters the change in cost, only who has to pay it. Namely, it forces the card user to pay it directly, rather than the store to have to pay it and accordingly pass the cost along to all consmers.
| pkang0202 wrote: |
| Also, how do you figure flat out higher prices on all things? American consumers already enjoy the lowest prices on goods. The price of everything gets passed along to the consumer. Credit card machines are just a cost of doing business. They are no different than a $2000 cash register with fancy lasers, TV's, and receipt printer. |
If most people use credit cards, businesses are being charged 1% to 3% extra (in addition to the minor PIN vs signing fee) to recieve their money. Rather than simply accept this loss (which can amount to billions of dollars in some cases, as it does for Best Buy according to the article), they pass this along to consumers in the form of slightly raised prices. These slightly raised prices affect us whether we use cards or not. I assert that there's no problem with these cards charging whatever fees they like in this regard, but they should have to charge the user of the card (i.e. the person introducing the cost into the system) rather than being able to hide the cost from consumers by charging businesses, who then secretly pass along the cost to consumers. The cost doesn't change, only it's visibily does (and it's ability to affect those who don't use cards).
| pkang0202 wrote: |
| VISA provides a service, and business pay for that service. Businesses don't like it, then they can NOT accept VISA and accept Mastercard, AmEx, or Discover instead. |
You very clearly haven't read the article and are just arguing on knee-jerk reaction. Most businesses realistically cannot choose to not accept VISA, for reasons described in the article. |
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Fox
Joined: 04 Mar 2009
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| Posted: Tue Jan 05, 2010 7:45 pm Post subject: |
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| Kuros wrote: |
| Fox wrote: |
| pkang0202 wrote: |
Stores don't pay. Customers DO pay.
The cost of the debit/credit card transactions get passed down to the customer. |
Stores pay and pass the price along to customers. In America, this generally equates to flat out higher prices on all things due to how often cards are used. Many people have no idea this is happening. |
They should. Do they think credit card companies have no overhead or expenses? Any vendor will tell them, if asked, how the credit card companies make their money. |
As I said, several times now, I have no problem with credit card companies charging these fees. They should just be charged directly to the consumer, rather than behind the scenes to the businesses receiving payments. This creates a competitive incentive to lower fees, rather than the current competitive incentive to raise fees discussed in the article.
So again: let credit companies charge what they want, but force them to charge 100% of the fees associated with card use to the holder of the card. Any fees charged to businesses will just be passed along to consumers anyway, so this doesn't actually raise the price of credit for the consumer. It just lets them see the real price. |
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pkang0202
Joined: 09 Mar 2007
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| Posted: Fri Jan 08, 2010 4:19 am Post subject: |
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| Fox wrote: |
| Kuros wrote: |
| Fox wrote: |
| pkang0202 wrote: |
Stores don't pay. Customers DO pay.
The cost of the debit/credit card transactions get passed down to the customer. |
Stores pay and pass the price along to customers. In America, this generally equates to flat out higher prices on all things due to how often cards are used. Many people have no idea this is happening. |
They should. Do they think credit card companies have no overhead or expenses? Any vendor will tell them, if asked, how the credit card companies make their money. |
As I said, several times now, I have no problem with credit card companies charging these fees. They should just be charged directly to the consumer, rather than behind the scenes to the businesses receiving payments. This creates a competitive incentive to lower fees, rather than the current competitive incentive to raise fees discussed in the article.
So again: let credit companies charge what they want, but force them to charge 100% of the fees associated with card use to the holder of the card. Any fees charged to businesses will just be passed along to consumers anyway, so this doesn't actually raise the price of credit for the consumer. It just lets them see the real price. |
Its just the cost of doing business. VISA is offering a service to the business. The business is paying VISA for their services. This is passed to the consumers like all other expenses of DOING BUSINESS (rent, heating, electricity, water, etc...).
Its not VISA's fault their their marketing of the VISA Checkcard was so successful, everyone just signs the piece of paper instead of punching in their code.
Companies like Best Buy and Costco could've easily setup a marketing campaign that pushed "Security and safety" of the PIN over the signing of the paper. They didn't. Now they are paying for it.
BTW, signing is better than punching the PIN due to fraud protection. You should go back to my earlier post.
Also, per the article:
| Quote: |
| �It�s a penny here or there,� |
Big freaking deal. If I don't like Best Buy's prices, I'll shop on Newegg or some online retailer. They take VISA too. |
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Fox
Joined: 04 Mar 2009
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| Posted: Fri Jan 08, 2010 5:46 am Post subject: |
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| pkang0202 wrote: |
| Its just the cost of doing business. VISA is offering a service to the business. The business is paying VISA for their services. This is passed to the consumers like all other expenses of DOING BUSINESS (rent, heating, electricity, water, etc...). |
Again pkang, I'm not insisting VISA lower their fees. I'm just asserting they should not be allowed to make those fees invisible to the consumer base. Let them charge what they want, but 100% of the cost of said credit should appear on the customer's bill. That way, the customer can make an educated decision about whether or not it's worth the cost.
Please stop straw manning me. This isn't about limiting what VISA can charge, simply about whether or not they can hide the real cost of credit from the consumer.
| pkang0202 wrote: |
| Companies like Best Buy and Costco could've easily setup a marketing campaign that pushed "Security and safety" of the PIN over the signing of the paper. They didn't. Now they are paying for it. |
No, now we are paying for it. That extra money that is going to banks could have been used to lower prices for us.
| pkang0202 wrote: |
| BTW, signing is better than punching the PIN due to fraud protection. You should go back to my earlier post. |
Your earlier post is a gigantic straw man against the case I'm making, as is this one. You keep acting like I'm demanding VISA lower their fees - I'm not. I'm simply proposing they not be allowed to hide their fees from the people who actually pay them in the end: the consumer. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Fri Jan 08, 2010 6:50 am Post subject: |
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Fox, it is nice that you're idealistic. Alas, Visa and the banks have a vested interest in maintaining the status quo. While obviously vendors and consumers have a vested interest in the policy you propose, they are much less organized, and in the case of consumers, not even aware it is an issue.
In short, it is a lost cause. |
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Fox
Joined: 04 Mar 2009
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| Posted: Fri Jan 08, 2010 7:00 am Post subject: |
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| bucheon bum wrote: |
Fox, it is nice that you're idealistic. Alas, Visa and the banks have a vested interest in maintaining the status quo. While obviously vendors and consumers have a vested interest in the policy you propose, they are much less organized, and in the case of consumers, not even aware it is an issue.
In short, it is a lost cause. |
Yes, this is more or less true. Most real reforms are lost causes in America, honestly. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Fri Jan 08, 2010 8:32 am Post subject: |
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| Fox wrote: |
| bucheon bum wrote: |
Fox, it is nice that you're idealistic. Alas, Visa and the banks have a vested interest in maintaining the status quo. While obviously vendors and consumers have a vested interest in the policy you propose, they are much less organized, and in the case of consumers, not even aware it is an issue.
In short, it is a lost cause. |
Yes, this is more or less true. Most real reforms are lost causes in America, honestly. |
Have you ever taken a comparative politics class? It is interesting to see the pros and cons of our system compared to a Westminster system vs. the parlimentary system you find in German, France, etc.
And a real interesting country is New Zealand. Its governments in the 80s undertook such drastic reforms that voters decided to change the NZ electoral system from a first to post (what the UK and US have) to porportional (such as Germany). Eh, my terms might be wrong there but I think you get the idea. The reforms ended up benefiting NZ quite a bit, but they were pretty drastic and the short-term impact for many vested interests was negative, hence the change to their electoral system.
Any kiwi is free to correct me if I'm wrong, but I think "real" reform has slowed down siginificantly since the changes. Then again, the need for reform has diminished too, thanks to the initial ones. |
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