Monday, May 08, 2006

Can anybody hear me?!


“Debit Added to Merchant Interchange Suit" CardLine (04/26/06)

Merchants this week added signature-based (offline) debit cards to the long-running interchange class-action lawsuit against the largest card issuers, including MasterCard and Visa.

The current electronic POS system clearly costs society too much in real terms. Meaning what? If you take what it costs the consumer and then subtract the real economic value of the service delivered the difference is manifested in fat bonuses and humorous ads during the Super Bowl – not to mention some great fat cat parties - funded by unwitting consumers through the guise of a benevolent “Association of Members”.

"Visa Reorg Vote Near; Where Does B of A Sit?" American Banker (04/27/06)Breitkopf, David
Visa U.S.A. will ask its members to vote Friday on several significant changes to its corporate structure, including the addition of four independent board members, some of whom could take control of its interchange rate policies.

The rats are jumping off the ship! VISA (and MasterCard) has resigned itself to the reality that it must change or die. My money’s on “die”. (More likely killed by litigation.) Anybody want a piece of that action?

"A BankAmericard Redux Poses Risks But Could Reap Rewards for BofA"
Digital Transactions (04/26/06)
Bank of America could face some big risks and big expenses if it decides to start its own payment network and brand, although such a move could allow the Charlotte-based bank to differentiate itself in a mature card industry, analysts say. According to Les E. Riedl, president of Alpharetta, Ga.-based payment consultancy Speer & Associates, a closed-loop payment system would allow BofA merchants to offer rewards programs for BofA cardholders more easily than such programs could be offered today through the open-loop Visa and MasterCard networks.

"Closed loop?" That’s secret code for: “If we get rid of the middle-man we can make it look like we are taking less (even though we’re not) and offering more (NOT) to the consumers whose money is paying for a 100% of this deal anyway. Sweeeet!”

How soon we forget. Back in the day, when BofA was just a bunch California goombahs running a bank with a misnomer for a moniker, they started this mess and sold it to the merchants like it was a protection racket. The wise guys of that day decided it was best to share the risk with their cronies (More secret code: “We cash out big, keep a huge net cash flow, and hand the risk to the other families; I mean Members.) Now that the jig is up they will all sell out to the chumps (i.e. public), move the shop to some new locale (Charlotte) and start all over again. Fugetaboutit!

"Wal-Mart Says Bank's Services Would Be Limited"Kansas City Star (04/26/06) Davis, Mark
In a recent interview, Wal-Mart Financial Service President Jane Thompson repeated earlier statements that a Wal-Mart bank, if approved by the Federal Deposit Insurance Corp., would not offer loans to anyone and would simply be used to process credit and debit payments for the retailer.

As usual Wal-Mart is a late adopter. BofA wants out and Wal-Mart wants in? Am I missing something here? Of course I am. “Why do bankers think they have any reason to fear Wal-Mart? Has anybody but me actually met Jane?” Oh sure, Wal-Mart could be a deposit gathering machine for the folks that may not make a bank deposit today, but then my dog can catch the paperboy’s car when it goes by.

"You've Got Money: Paying Via Text Message" Wall Street Journal (04/26/06) P. D1; Mangalindan, Mylene; Vascellaro, Jessica E.
A host of new services is allowing users to make purchases and transfer money through their cell phones by simply sending a text message, such as eBay's recently unveiled PayPal Mobile and the startup firm Obopay. These offerings come as Visa, MasterCard, and others are developing technology that would store credit card numbers in mobile phones that could be waved at terminals in retail stores to make purchases. Yawn… These efforts are part of the broad trend in several industries where companies are seeking to capitalize on the vast business potential of mobile payments Globally, mobile payments made through portable devices are projected to reach $37.1 billion by 2008 (That’s only 10% of BofA’s 2005 volume just in the US; not exactly a firestorm and probably not an accurate.) although consumers could be deterred by fees.

Herein lies the real problem. Electronic payment processing is a problem that should be solved for tenth’s of cents per transaction - NOT DIMES or worse - DOLLARS!

It’s the greedy issuers that make the payments game tough for everybody. They obsfucate the facts so consumers don't know how much they really pay. Conventional wisddom says, "Consumers don't want to pay." The reality is "CONSUMERS ALWAYS PAY!" As some one else once said, "It's not about who's going to pay, it's about who has to tell them." The issuers have conspired to maintain the secret.

Case in point: Everyone knows ATM transactions are in the tank. Why? It's not rising surcharge fees. Surcharge fees are rising because issuers have reneged on their side of the deal and now pay reduced ATM interchange to ATM owners that aren't "Members". And to add insult to injury they promote PIN debit and “Cash Back” as a way to raise their own revenues on the unsuspecting backs of their customers who think they are saving money by not paying ATM fees.

Please consider these questions: i) who should really own the fee relationship in the payment system, ii) how much is it worth in real terms to settle payments – especially the PIN encrypted electronic ones, and iii) how much is actually being charged by the industry as a whole – interchange fees, processing fees, network fees, ISO commissions etc. ?

Today the de facto owners of the fee relationship are the credit card issuers. They appear poised to abdicate the throne since everybody’s figured out they’ve been charging WAY TOO MUCH and still want more. Merchants like Wal-Mart want to play – ostensibly to eliminate the onerous interchange fees it pays (and quietly collects from its customers) – but even IF that’s their motivating factor they WILL NEVER BE successful in acquiring a bank charter. (Wake up Wal-Mart! This ain’t the WPT. Even though you have enough money to sit down at the table, the guys running the game won’t give you a seat.)

The solution is simple: Let the guy that pays the fee decide. That’s the guy that owns the fee relationship. The consumer must regain the power to decide how and when he wants his payments handled and for what price.

Global Cash Access, Vero, BVIG, Advance America and any number of independent check cashers, payday advance firms (the legal loan sharks) and the real loan sharks don’t appear to be particularly challenged when it comes to collecting their fee. I didn’t see one class action suit against them because “they charge too much.” Why? Because the people paying the freight understand that they have to pay regardless of who is telling them, and these new guys at least give them the choice of saying, “No thank you.”