Big Credit Cards Need to Change Practices, Says New Report

WASHINGTON, D.C. - Backed by findings of a new report, the Merchants Payments Coalition (MPC) said "merchants get nothing" out of programs that constitute nearly half of the $30.7 billion in credit and debit card interchange fees that Visa and MasterCard collect annually in the United States.

The study, "A New Business Model for Card Payments," issued by Chicago's Diamond Management and Technology Consultants Inc., said that "processing - the original reason for interchange - comprises only 13 percent of interchange costs."

Meanwhile, the largest component of interchange, paying for issuer rewards programs, accounts for 44 percent of interchange costs, "but merchants get nothing out of these programs," said the report.

MPC said the trend is expected to get worse unless there is a fundamental change in how the U.S. credit card system operates.

"This report corroborates the message that merchants have communicated to lawmakers over the past year -- that interchange fees are far, far higher than the actual benefits delivered to both merchants and the vast majority of consumers," said MPC chairman Mallory Duncan, the National Retail Federation s.v.p. and general counsel. "This is important research that will help the public understand how much Visa and MasterCard are needlessly charging them. Among other things, this fee is fueling the flood of credit card offers stuffing consumers' mailboxes."

Duncan said that the credit card company's rules "effectively require that interchange be built into prices and make cash discounts all but impossible, so these fees take money out of consumers' pockets regardless of how they pay. Consumers are led to believe that rewards are free, but this study shows consumers are being charged for these rewards whether they ever get to use them or not."

MPC said the study offers a rare glimpse into what costs are paid for by the largely unknown fees. The researchers said merchant dissatisfaction with unreasonable interchange fees raises important questions about the future of the credit card business model and could lead to the unraveling of the traditional system in coming years.

MPC has argued that collective setting of interchange fees by Visa and MasterCard violates federal antitrust laws and costs merchants and consumers an estimated $30.7 billion last year. MPC is fighting for greater transparency, the disclosure of operating rules that govern interchange rates, and reasonable fees based on actual transaction costs.
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