Do you think that Visa (NYSE:V), MasterCard (NYSE:MA), American Express (NYSE:AXP) are your friends? If so, you should read on. Those processing companies may make shopping more convenient but they are also costing you more money.
The Justice Department reached a settlement with Visa and MasterCard Monday. The two transaction processing firms were accused of engaging in anticompetitive practices. Basically both companies were stopping consumers from getting cheaper deals from merchants. Visa and MasterCard would pressure businesses from using competing cards with lower acceptance fees. Lower fees means lower prices for consumers because merchants would not have to mark items up to cover high transaction fees. Companies like Visa and MasterCard are so large that they can threaten to withdraw their services from merchants. Since most Americans carry cards with one of these 2 logos; this would cripple the business of many merchants.
Transactions fees are big business. Card companies make a fortune off of interchange fees. Interchange fees are the fees that banks charge businesses to process a transaction. These fees typically range from 1 to 3% of the cost of a purchase. The 3 biggest processing companies generated $35 billion dollars in revenue from transaction fees last year alone.
American Express was also found guilty of the same charges but has not yet reached a settlement. American Express users pay an even heftier premium than Visa and MasterCard cardholders. Shares of American Express were down around 7% Monday while shares of Visa and MasterCard were largely unchanged.
Remember that every time that you swipe your debit or credit card at the grocery store, gas station, mall, and movies, you are driving up the price of that particular good or service.