[Dave Birch] There’s an interesting article about the ongoing retailers vs. schemes litigation in the May 2013 issue of “ISO & Agent“. It’s by Autumn Cafiero Giusti and it’s called “Merchant-Surcharging Worries” and it observes that

Consumers who pay with cash, check, debit or prepaid cards would not be subject to the acceptance fees, which would apply only to credit cards.

This is ludicrous. If we are going to have surcharging, it should not be on the basis of which set of lobbyists won in Washington but on a rational basis that aligns with the national interest. Credit card issuers and retailers are not the only two groups of stakeholders in the retail payments world and the interests of wider stakeholders should be considered. There is no doubt in my mind where that line of thinking would take us.

Debit cards, and pre-paid cards, deliver the minimum social costs. Therefore, they should be the zero point… Every other payment mechanism (including cash) should then be charged for.

[From Which payments should be surcharged and, more importantly, why]

PIN debit is the best option for society as a whole, Instead of allowing surcharging for credit cards only, I’d regulate the other way round. Make it a legal requirement that any retail price displayed by any retailer for any good or service must include the cost of payment by PIN debit. Leave it to the retailers to accept or reject, charge or not charge for anything else. This is the rational option for the USA.

Why then do we have the apparently irrational proposition to surcharge credit cards only on the table? Well, these are very political times. In the whole of the schemes vs. retailers smackdown, I’ll bet that considerably more money went on politicians than on, say, economists. Or, for that matter, consumer groups.

The banking industry and the merchants coalition have each hired more than a hundred former government officials to lobby for their interests, according to Sunlight Foundation.

[From Banking Groups Stir Consumer Fears on Debit Card Regulations via Twitter – ProPublica]

I doubt that much attention was paid to technologists either. If the Senate had asked, for example, me about this then I would have told them to focus on making it easier for competitors to enter the payments market and let the hand-grenade of mobile shake things up.

The intersection of government policy and innovation could result in regulations being made by lawmakers who do not fully understand the emerging mobile payment industry.

[From Card Not Present.com CNP Expo: Danger of ‘Over-Reactive’ Legislation in Payments – May 22, 2013]

Wait, “could?”. I’d say it was racing certainty. I was at this panel (which was excellent, by the way) and asked a big picture question at the end. I asked what the point of payments regulation was. What was the US’ goal? Is it to minimise social costs or selected private costs? To balance security and safety with expense? To distribute costs in a fair way? What? The answer was, if I understood it properly, that no-one knew. Payments regulation in the US is, as one of the panelists rather amusingly said, two fat guys fighting over dessert. The fat guys are the banks and the retailers, the ones with the lobbyists, and the dessert is interchange revenue. Surely this is no way to regulate such an important industry. In Europe, payments are edging toward more utility-like regulation and being separated further from banking regulation, as they should be. The US could do worse.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

1 comment

  1. Dave,

    Excellent points … surcharging (and its sibling … discounting for cash) are symptomatic of this never-ending battle to treat payments as some sort of service that is to be provided at a price that is unrelated to its actual cost plus a fair margin for all players in the infrastructure. Because of the lack of transparency into all the factors that go into the true cost of payments, a marketplace for payment processing has developed akin to the “Wild West” and “Gold Rush” of 1849 …

    As this continuing “battle” works it’s way forward, the only true beneficiaries will most likely be the lawyers, the lobbyists, and the political campaign managers. The rest of us will need to try and determine how best to market our goods and services in a manner that sets our price at the point that the added value and convenience provided by the payment mechanism and channel are acceptable to our customers.

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