The Latest Merchant Shot Across The Interchange Bow

Different day, same song:  Merchants, through the Merchant Payments Coalition (MPC), are complaining about interchange fees.

This time, the story has a bit of a twist.

In a press release issued on Friday (Oct. 9), the MPC advocated that Visa should lower interchange fees now because fraud will be reduced thanks to the adoption of EMV by merchants.

In a hearing last week held by the U.S. House of Representatives Small Business Committee on EMV migration and its challenges for SMBs, Visa was challenged over its “high” interchange fees by ranking member Nydia Velázquez (D-NY). Rep. Velázquez asserted that since Visa has defended its high fees as part of the cost it incurs to provide fraud protection services and since fraud rates will go lower, so should interchange fees. The “fraud will go lower” part is a reference to the shift in the U.S. to EMV chip cards.

The move in the U.S. to EMV is not a mandate for retailers but rather a shift in liability that took effect on Oct. 1. Any merchant presented with an EMV card by a consumer who does not have an EMV reader to process those transactions is liable for any fraud that might transpire from those transactions.

In response to Rep. Velázquez’s comment, Visa VP for Risk Products Stephanie Ericksen pointed out that “fraud is one component of [interchange], including the credit risk of lending [those funds] to the cardholder.” Ericksen further remarked that “the criminals continue to invest in strategies to commit fraud as well, so we need to continue to invest in the ability to address that fraud. Even though EMV is one technology that is going to help drive fraud down, we need to continue to invest in other types of authentication technologies that continue to stay one step ahead of the criminals.”

MPC maintains that Visa and other card brands have bullied the merchants with a “take it or leave it” approach, alleging that they are depriving merchants of any negotiating power.

At the hearing, Ericksen explained that “interchange fees are very competitive and incentivize participation from both issuers and merchants to participate in accepting electronic payments.” Ericksen’s position is that Visa’s ongoing investments in security and technologies make payments convenient but increase “consumers’ confidence in using electronic payments.”

Rep. Velázquez’s response: “I can’t help but laugh.”

In its press release following the hearing, the MPC suggested that high interchange fees drive up the cost of goods and services to all consumers, not just those paying with credit cards. While there’s no documented evidence to support this claim, there is one data point that quantifies the impact to consumers when interchange fees are reduced, which they were by roughly 40 percent by the Durbin Amendment to the Dodd-Frank Act.

In a whitepaper written by economist David S. Evans in 2013 and published last year in the Journal of Competition Law and Economics, he and his colleagues found that consumers lost, on net, about $22 billion to $25 billion as a result of the reduction in debit interchange. In the paper, Evans pointed out that while retailers would pass on some of their cost savings, they wouldn’t pass all of it on — by the NRF’s admission, retailers would keep more than 30 percent of those savings. Evans’ calculations, however, found that retailers would keep roughly half, making the impact to the consumer in the retail setting significantly outweighed by likely fee increases or reductions in service quality for checking accounts maintained by the banks when their interchange fee revenues are reduced. According to Evans: “Last week’s flurry of articles on high ATM fees are one manifestation of the problem.”

Of course, the dust-up over interchange is as old as time itself in the payments industry, dating back to the very beginning when the American Hotel Association in the 1950s complained about fees being charged by issuers to enable payment by card and tried to start their own card system. More recently, many merchants filed lawsuits against MasterCard and Visa in 2005 over claims that they rigged fees and prevented retailers from asking customers to use cheaper methods of payment in their stores.

One case resulted in a 2013 settlement in which Visa and MasterCard paid $5.7 billion to merchants and made an agreement that merchants could also begin charging consumers a fee every time they used a Visa or MasterCard credit card. Few merchants do, opting instead to give consumers the choice to pay how they wish in an effort to make a sale.

The MPC, which can be found at, consists of a group of retailers, restaurants, supermarkets, drug stores, convenience stores, fuel stations, online merchants and other businesses that lobby against “unfair credit card fees and for a more competitive and transparent card system.” Its members are said to represent roughly 2.7 million stores who employ 50 million people.

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