Comments on: The interchange fee panel A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: AdamJ23 Thu, 10 Jun 2010 16:12:39 +0000 Mr. Do- Well, getting millions of merchants and 100 of millions of customers creates a bit of a collective action problem. One consumer who fights the credit card companies has to deal with cash and sees no apparent upside. One merchant who decides to fight the credit card companies by denying credit cards is going to get punished in the marketplace- other merchants in the same market will quickly scoop up that merchant’s credit card using customers. The same goes for creating a transparent fee for using credit cards- a credit card using customer will go to a merchant who doesn’t have a transparent fee, because he can get it cheaper by free riding and sharing the fee with non-credit card using customers. You either need the merchants to collectively bargain with the credit card companies on fees (so they have roughly equivalent bargaining power) or you need regulation. And I suspect collective bargaining isn’t feasible (or legal for antitrust reasons) but it would probably create a more fair bargain then regulation.

By: Mr.Do Thu, 10 Jun 2010 03:53:40 +0000 Felix, I’d be interested in your take on letting merchants pass on the fee to purchasers. It does seem there is a monopoly and something should be done. But can’t we try letting millions of merchants and 100 of millions of customers make there own decisions on the appropriate fee before we appoint a regulator to decide it?

By: HBC Wed, 09 Jun 2010 20:32:59 +0000 While domestic service is already expensive enough, merchants enrolled with (let’s say) Cardservice International get hit with more like 9% in VA/MC charges on transactions with Canadian and Mexican customers. It can quickly become a losing business for the retailer, on top of other usage fees they have to pay for the privilege of running a plastic terminal to keep shoppers happy.

So much for the logic behind NAFTA and international banking.

By: AdamJ23 Wed, 09 Jun 2010 18:53:42 +0000 Gotta love Zywicki’s intellectual dishonesty- He’s arguing that the merchants should assume “credit risk” because they’ve helped banks expand the bank’s profit center of credit. Nothing like getting charged to help another business make money.

By: Foppe Wed, 09 Jun 2010 16:44:40 +0000 (“those mortgages” being subprime mortgages as well as any others that are now under water)

By: Foppe Wed, 09 Jun 2010 16:43:43 +0000 Like I said, zywicki is a pompous twit who only deals in red herrings and misdirections. Looking at his comment, “simply” is apparently a very important word to him, and it appears that he’s picked up on the fact that it often implies obviousness; but (as I’m sure you’re aware) the only thing it really proves is that zywicki is a very insecure fellow who feels the need to “subtly” bash others to feel good about himself. If this is what passes for a right-wing academic in the US, then Glenn Beck deserves an honorary PhD.
Anyway, the problem with these chaps, I’ve noted, is that they frequently present highly decontextualized, or just plain incorrect information, and then proceed to argue some point or other based on that.
Needless to say, regardless of their status as a tenured academic, it is best to assume they lie, as they aren’t trying to participate in intellectual debates; all they want is to ‘defend’ their hobby horses.

PS. As a rule of thumb, it is wise to assume any service a bank offers is profitable to them; the most important example to consider here is the fact that, on those mortgages, they made (and make!) oodles of interest money because people are reluctant to default on loans even when it makes no sense whatsoever for them not to do so.

By: MarshalN Wed, 09 Jun 2010 16:24:41 +0000 Paypal fees, on the other hand, are indeed almost effortless. Now that’s something to get really angry about.

By: y2kurtus Wed, 09 Jun 2010 16:12:02 +0000 Felix,

You are absolutely correct that interchange fees are too high and that merchants are being largely riped off. I’m a banker and I agree with that.

I dissagree with two points… first interchange fees while lucrative are in no way “effort free.” When a large grocery store chain fell victem to a corporate criminal syndicate and roughly 1000 of our customers cards were comprimised we basically shut down our operations department to re-issue 1000 debit cards in two days. All that expence fell to the bank. Now that’s one incident in the 7 years I’ve worked at my high achiving local savings bank; so clearly we make money on interchange… just not effort free.

On the “credit” issue… your aquaitence may have been trying to contrast the divine assurance of receiving 96 cents on the dollar when being paid with a card, with the risk of accepting a paper check. If someone floats you a bad check you’re out of luck for the purchace price and probably hit with a $35 dollar fee from your bank as an added slap in the face. That’s whay so many businesses don’t even accept personal checks.

Think about this the next time you want to compare checks clearing at par with a 4-5% interchange fee:

Nearly all small merchants accept cards even with the profit margin destroying fees.

Many small merchants won’t accept personal checks even though they clear at par… why is that?

Keep up the great blogging… your content is FANTASTIC!