Comments on: What doesn’t add up

By: Iang (chip & pin fallacies)

Iang (chip & pin fallacies) — Fri, 16 Oct 2009 16:55:22 +0000

Surely the right answer is to leave the fees to the marketplace but make it as easy as possible for competitors to enter the marketplace? Hear hear! And, separate payment systems from banking (or whatever banks think they do these days). Where I am, the local geek paradise store gives a 2% discount for cash over direct debit. Clearly interchange fees are more a model of market power and ability to generate fees than any "social" cost. Visa's rejection of a comparison that is unfavourable to them is obvious and silly. Also, I'm not entirely convinced that cash is socially worse. Mason & Porkess just published an article at http://www.newlawjournal.co.uk/nlj/content/chip-pin-fallacies that suggests to me that chip & pin is more risky for the holder than cash.

By: Richard Allen

Richard Allen — Thu, 15 Oct 2009 12:17:03 +0000

Yes, leave it to the marketplace and competition, for sure. Whine to the regulator only when there is no effective competition.
I get 1 per cent cashback reward on all my credit card spend. To me, that indicates that interchange on credit cards must be too high – interchange on debit cards tends not to support reward schemes. Should society subsidise my credit card usage?
If regulators are unable to calculate the true cost of cash, then how can we determine the cost of using any particular payment instrument?
Instead of fixing the fees, perhaps the regulator could allow the merchant to pass on the cost for accepting the payment instrument, if they so wish? We’ll then see a marketplace and competition between cash and the various card types.
In practice, the merchant will attribute some value to the additional business that accepting a card brings. The difference between that and the cost of accepting the payment instrument will become apparent at the point of sale.
In this model, if the current interchange is correct, the merchant can give me the 1 per cent cash reward for using my credit card in his store. Maybe.

By: Colin Henderson

Colin Henderson — Tue, 13 Oct 2009 02:48:50 +0000

Interchange is right up there with black holes and quantum physics in terms of my understanding. It certainly is totally obscure to consumers.
One major shift here which you allude to is the introduction and promotion of new premium credit cards AND attaching higher merchant fees to those cards, so help recoup the higher membership fees.
It occurs to me when a consumer presents those cards, the merchant has little choice but to accept the card and higher fee.