Jestep

Why Credit Card Interchange Fees Should Come Down

I am strongly against regulation of interchange. Another thing that you, most consumers, businesses, and definitely the government don't take into account is that interchange doesn't cover any of the costs to the company that acquires the merchant account (An ISO in the US, or a bank in most other countries).

While businesses in the US pay some of the highest interchange, they pay some of the lowest fees overall. What they don't tell you about countries with capped interchange is that the actual fees that businesses pay are substantially higher, because there is no front-end competition, such as with the ISO industry in the US. When banks or a few companies control the entire industry, there is no competition. Just look at the cellular industry. The costs for cellular services are tremendous, and there's no reason that ATT or Verizon would lower their fees, because people only have 2 options, and will pay for one of them. Australia, Canada, and other countries with "low" interchange face a similar situation with their processing fees. Banks control everything, there is no front-end competition, and businesses get gouged on equipment, service fees, or setup fees. People are upset about interchange, but it is free to setup a merchant account, equipment is very competitively priced, and businesses have thousands of options on who to process with. Go to Canada, where it can cost $2,000 for a terminal that cost $200 in the US. Or pay $1000 to open a merchant account, when it's completely free in the US.

Additionally, the mess that would be created by trying to facilitate a system in which all merchants can negotiate with V/MC is insane. There are about 8 million businesses in the US. Just imagine if a fraction of them started calling incessantly about negotiating their rates directly to V/MC. Maybe some sort of watchdog organization would be appropriate, but to create a system that allows and promotes such chaos, is not a responsible method of trying to deal with this.