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MasterCard Offers Concessions In Interchange Fee Battle

By Martin H. Bosworth
ConsumerAffairs.com

September 6, 2006

Credit Card Fees • Visa, Mastercard Settle Suit With West Virginia • House Studies Credit Card Fees • Retailers Fret Over "Swipeless" Credit Cards • Visa Publishes Interchange Fees For Credit Cards • MasterCard Offers Concessions In Interchange Fee Battle • Merchants Testify Before Congress on Credit Card Price-Fixing • MasterCard IPO Shifts Risk from Banks to Investors • Thanksgiving: A Day Without Credit Cards? • Credit Card Companies Rocked By New Merchant Lawsuits • Merchants Sue Credit Card Issuers Seeking Lower Fees • Suit Challenges Credit Card Fees

The world's second-largest credit card company says it will publish a full schedule of the interchange fees merchants pay to process transactions using MasterCard-branded plastic. Visa indicated it had no immediate plans to match the move.

Separately, the credit card giant announced what it called a "partnership" with petroleum retailers to "cap off" the interchange fees charged when consumers fill up their tanks using credit or debit cards.

Walt Macnee, new president of MasterCard's American operations said the moves were designed to provide "additional transparency around interchange rates." "[B]ecause of the unique structure of the petroleum distribution business, gasoline retailers are disproportionately affected by high oil prices," he said.

The moves are widely seen as an attempt to appease merchants, in the face of class-action lawsuits led by merchant coalitions that claim MasterCard, Visa, and their partner banks collude to set artificially high interchange fees for merchants in order to boost their profits.

MasterCard set its fee cap for gas transactions for purchases of $50 or greater. Although the cap may be of benefit to owners of SUV's and truckers, the average motorist will still end up costing their merchant the full fee, particularly as gas prices continue to slowly drift under $3 a gallon.

Window Dressing

Retailer Mitch Goldstone, one of the leaders in the merchant lawsuits against the credit card companies, called the moves "window dressing."

Commenting on his blog, WayTooHigh.com, he said the move was akin to "enticing a diner at an all-you-can-eat buffet with a free dessert after their entire meal is finished."

Goldstone criticized the idea of publishing a fee schedule, saying consumers would be better served by an exact accounting of what the merchant pays to process different transactions, including food, clothes, and so on.

In an interview with ConsumerAffairs.com, Goldstone questioned the timing of the move as well. "Why announce this now, after Labor Day? Did they already make all the money they needed to off vacationers?"

Goldstone has advocated much stronger transparency by credit card companies in terms of how their interchange fees work, and how much they really cost consumers and merchants alike. The merchant coalition claims that processing fees on plastic transactions can be so high that they wipe out any potential profit the retailers can make.

MasterCard's move can also be seen as an attempt to shed further risk in case of a successful outcome for the lawsuits. The credit card issuer recently went public, a move widely theorized to shift the potential costs of the lawsuits from member banks to investors.

Visa's Response

MasterCard's chief rival was relatively mum on the announcement of the fee publishing.

Visa, which is still privately held, offered a statement saying that, "There is full visibility of pricing within the Visa system. Retailers do know, and always have known, the price they pay to accept Visa cards."

Goldstone remains skeptical that the two big credit card issuers are seriously differing on policy matters. "How can there be real competition when they're owned by the same banks and control 80 percent of the market?" he said.

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