I’m Glad Visa and MasterCard Are Raising Their Rates

That’s right; you read the title correctly.  I want to explain why I’m glad Visa and MasterCard are raising their rates.

If you haven’t been following payment news very much lately, then you may have missed a very important news story.  Right now sources say Visa and MasterCard are considering raising the interchange fees.  I would like to point out a couple things about this story which annoy me, and then I’ll talk about why I’m glad that it’s happening.

#1.  I don’t understand why Visa AND MasterCard are considering anything.  I thought those were two totally separate companies.  There is no collusion – no monopolistic tendencies, right?  Rather, Visa and MasterCard are competitors.  Right.  Sure, they are!  Anyway, for those who don’t understand America’s economic system, we have a free market, capitalist economy.  That is great.  It is predicated on competition.

If all the auto lots in your area got together and decided to charge 30% more for cars, that would be illegal.  If they all colluded together to raise all the prices of cars, then you wouldn’t be able to buy a car unless you paid 30% more.  The way that process should happen is if one place raises their price, another place might say, “Maybe we won’t raise our price.  Instead, we are going to steal business from that other dealer by our lower price.”  That’s called competition.  Competition is healthy.  Free market capitalism is built on competition.

When the two mega companies who almost control the whole market, other than a little sliver for American Express and Discover, get together and decide “WE are raising rates,”  that’s not okay.  It’s not supposed to work that way.  That frustrates me a little bit.  (Again, I remind my readers I’m not an attorney.  This is not legal advice.)  Of course, Visa and MasterCard didn’t come out with their joint press statement.  But it’s interesting that the news stories’ reports say “Visa and MasterCard” are considering this.  That’s interesting.

#2.  I love how one spokesman (I think for Visa) said, “Well, we’re not raising the rates for the business owners.  We are just raising the interchange rate we charge to the merchant banks.  Whether or not they choose to pass that cost on to small business owners is up to them.”  REALLY?  That’s your pitch?  Visa and MasterCard are saying this may affect small business owners, but it’s not their fault.  OF COURSE, banks are going to pass charges on; that’s ridiculous!

That situation is like saying I own a bicycle shop.  But the big company from whom I purchase says, “Well, we’re doubling our cost of bicycles.  Whether or not you pass the cost increase on to the consumer is up to you.”  Of course, I’m going to pass it on.  They just raised the rate.  Obviously, I must pass it on.  So yes, raising interchange rates will affect small business owners.  It’s the interchange rate!

Obviously, you can tell I’m a little frustrated by their actions.  So, why am I glad they’re doing it?

I’m glad that they’re doing it because I feel like they are playing right into our hand in terms of cash discounting and surcharging.  If merchant services sales people are not talking about this already with business owners, you are missing a huge opportunity.  Get that news article from the Wall Street Journal, payments.com, or one of the several others who have it.  Show it to business owners right off the bat and say, “Hey, take a look at this.  I don’t know about you, but I feel like enough is enough.  This is ridiculous.  How long are they going to raise rates?  They just finished trying to settle an anti-trust lawsuit accusing them of over-charging merchants to the tune of 6 billion dollars.  Their response to all that is, ‘Let’s raise our rates higher.’  That’s insane.”

So, it’s time to fight back.  Again, whether your bent is cash discounting or surcharging, it’s time to fight back, ban together and say, “Look, enough is enough.”  Merchants have been paying these fees for way too long.  It’s time to educate consumers about these costs that are being passed on to the business owners, and that the business owners need to pass on to the consumer.  No matter what your particular bent is on this, I think this is a good thing.  If you are against surcharging and cash discounting and are just with traditional processing, then it’s something for you to talk about and to be aware of.  This is a shift in the market.  This is a big news story.  It’s something merchants are going to see.  It’s going to affect their pricing.  They are going to see higher interchange rates.

I saw some amazing grafts and charts in the Wall Street Journal.  The charts showed how interchange fees have gone up over the decades.  Also, the card association dues and assessments, etc.  Just amazing to see the identical curve going up for Visa and MasterCard together.  To me that’s an amazing example of blatant collusion between two mega companies, and, also, just a blatant example of anti-competitive behavior.  There is nothing small business owners can do about this other than pass the costs on to the consumer.  That’s really the only thing they can do.

I realize maybe I’m on an island; I’m the only one that feels this way.  But I’m happy Visa and MasterCard are doing this because I feel like in our industry right now, at least the agents, we’re in a little bit of a war with Visa and MasterCard.  I understand there’s obviously a symbiotic relationship.  We’re selling card acceptance.  They are providing card acceptance.   However, I think there is a bit of a battle going on here both legally and otherwise with surcharging, with cash discounting, with the concept of passing the cost on to the consumer.  Our whole pitch to the business owner is that the time has come to stand up to Visa and MasterCard.  Enough is enough.  Visa and MasterCard are already charging U.S. businesses triple, quadruple the charges in other developed countries.  We as U.S. business owners have had enough.  It’s time to push that agenda.  So, when Visa and MasterCard in response to that agenda say, “Let’s raise our fees higher,”  I applaud that because it’s going to help us in our conversation with small business owners.