Thursday 15 December 2011

How a Tiny Des Moines Start-Up Believes It Can Beat the Credit Card Industry

The odds are stacked against Dwolla.
It believes it has found a way to build a payment network that runs on cash and eliminates the costly fees associated with credit cards.
It is those fees, called interchange rates, that make other companies, like Visa and MasterCard, a ridiculous success.
To disrupt the system, the Des Moines, Iowa-based company is building a digital wallet that allows people to pay for an item at a store or in person (like the babysitter) using the Dwolla mobile application.
Today, it rolls out a new part of the system, which it hopes will financially support lower interchange rates for merchants.
The hitch is that instead of the entire burden being on the merchant, like it is now, consumers will be expected to pay for what they use. It would sort of be like a bank charging for checking (and we know how well that goes over).
Ben Milne, the founder of Dwolla, believes that if the costs of the system are transparent then people will understand why they have to pay. “There’s a cost to the network and we think everything should be apparent and upfront to everyone,” he says.
So far, there are two critical pieces of the operation.
The first one rolled out a few weeks ago and makes any transactions under $10 free to the merchant. Normally those transactions are cost prohibitive to merchants because they have to pay around 2.75 percent per transaction. On small purchases, that can be their profit margin.
The second part of the system rolls out today, and explains how Dwolla believes it can make money even when it doesn’t charge for small transactions.
The feature is called “Instant.”
It will allow Dwolla users who sign up for it to have access to cash immediately.
The company doesn’t mean the kind of money that folds, but rather allowing the free exchange of money between people and merchants without any fees — like cash. Think of it as a little bit like PayPal when there’s no fees.
Here’s how it works:
Users sign up for Dwolla and link it to a bank account.
They pay $3 a month to get access to cash immediately instead of having to transfer money from their account to Dwolla each time they want to use it, which can take two or three days. Users will have a credit line of up to $500. If they fail to pay off their balance at the end of the month, they will be charged $5. The subscription can be turned off at any time.
In the system, any transactions over $10 will cost 25 cents, which is paid by the merchant (or a person can volunteer to pay for it, which happens sometimes if it’s a donation).
The feature is even more important on the back end because it brings down a merchant’s cost of accepting credit. Instead of paying upwards of 2.75 percent per transaction, merchants will pay zero for purchases under $10.
Dwolla is working with TMG Financial Group in order to be able to extend the line of credit to its users.
The system may be a tougher sell to consumers, who are currently showered with free accounts and other incentives, like airline miles, for using credit cards.
Generally, Dwolla is part of the bigger trend of payments going digital. Google, Visa, MasterCard, cellphone carriers, American Express, PayPal and a host of other start-ups believe in the value of making money more accessible and losing the legacy form factor of a plastic card.
If consumers do buy into what Milne is trying to do, it still might be difficult to actually use.
The company is tiny. It has roughly 15 employees, 70,000 users and is live in up to 4,000 locations in the U.S.
Dwolla’s Ben Milne knows the odds and is still optimistic.
“Life is a hustle, and it’s not going to be easy to build these things. But we weren’t in rooms last year that we are in today, and the size of the financial institutions we are talking to right now are large companies.”

URL: http://allthingsd.com/20111215/how-a-tiny-des-moines-start-up-believes-it-can-beat-the-credit-card-industry/?mod=googlenews

Wednesday 7 December 2011

Visa and MasterCard are not Finite Options for Rental Car Insurance

Let me tell you a horror story about credit card rental insurance.  A few weeks ago I needed a rental car.  Enterprise was located right around the corner, so I figured I would give them a shot.  This was my first rental car, so I wasn’t exactly sure how this process worked. But to my surprise, I was in my rental in under 20 minutes.  Perhaps that was part of the problem.
I normally drive a 2003 Ford Mustang. While I requested a car of similar size, Enterprise only had three vehicles available: a Ford F150, a Dodge Dakota pick-up truck, and some mini-van the size of an 18-wheeler.   After considering my options, I should have walked away.  I’ve never driven a big truck before, and living in a sky-rise with a tight parking garage, it would be a terrible idea to take any of these.  Regrettably, I asked for the smallest of the three vehicles, which was the Dodge Dakota.
Having just received my new Capital One Spark Business Visa Card, I knew I had rental car damage waiver protection. So in filling out the paperwork on this truck, I waived the extra $19.95 a day damage insurance offered by Enterprise.  I moseyed on back to my apartment complex, only to realize that this pick-up truck was indeed too large for my parking garage.  I tried to maneuver the truck into my parking space, and even though I thought the dimensions would work … they didn’t.  I ended up getting stuck to the cement post to my left.
The only way out was to rev it, so that’s what I did.  You might say that my 20 minute rental of a Dodge Dakota was now a wee-bit crumpled. Looking at it made me sick.  I drove the car out of the garage and returned it right back to Enterprise.  They filled out a quick form, looked at the damage and told me they would call with an estimate the next day (two weeks later, I have not heard from them).  If I were to judge, I’d say there’s about $2,000 worth of repairs needed.  Ugh.
But not to worry. I immediately called Visa to get the claim form filled out.  After providing the very helpful CSR with my information, she let me know that I do not qualify for coverage.  What was that?  Well wouldn’t you know it; certain cars and trucks are NOT included in rental car insurance coverage.  Taken directly from Visa’s website:
Excluded worldwide are: expensive, exotic, and antique automobiles; certain vans; vehicles that have an open cargo bed; trucks; motorcycles, mopeds, and motorbikes; limousines; and recreational vehicles.
And from the MasterCard website … just in case you think I’m getting a raw deal:
Excluded: All trucks, pickups, full-size vans mounted on truck chassis, campers, off-road vehicles, and other recreational vehicles; trailers, motorbikes, motorcycles, and any other vehicle having fewer than four wheels; antique vehicles
Seems like anything that’s not a sedan or compact car is excluded. Sadly, that knowledge would have gone a long way in getting me off the hook for this four digit expense I’m about to incur.  Instead, I wait for a dreadful phone call to learn how much this overpriced estimate is going to be. And there’s not a gosh darn thing I can do about it.
I guess the moral of this story is that you should never assume your insurance policy covers you in certain scenarios.  Whether it’s auto, health, home or life insurance, make sure you know the ins and outs of your coverage. And even if you think you’ll never get into an accident, plan for it.  Don’t be the $2,000 idiot I was and assume you’re covered.

URL: http://www.doughroller.net/credit-cards/visa-and-mastercard-are-not-finite-options-for-rental-car-insurance/

Debit-Fee Cap Has Nasty Side Effect

Jason Scherr had a lot on his mind the day after he opened his fifth Think Coffee shop in Manhattan last week. The fan was blowing too hard, the classical music was playing a little too loudly—and he was trying to figure out how to get more customers to pay with cash.

Julie Glassberg for The Wall Street Journal
Manhattan coffee-shop owner Jason Scherr says his debit-card fees are higher since the Dodd-Frank law.
A new law that was supposed to reduce costs for merchants that accept debit cards has instead sent Mr. Scherr's monthly processing bills much higher and forced him to reassess the way he does business.
"My choice is to raise prices, discount for cash or get an ATM," says Mr. Scherr, a lawyer who has been in the coffee-shop business for more than a decade.
Just two months after one of the most controversial parts of the Dodd-Frank financial-overhaul law was enacted, some merchants and consumers are starting to pay the price.
Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates—not lower—when their customers use debit cards for transactions that are less than roughly $10.
That is because credit-card companies used to give merchants discounts on debit-card fees they pay on small transactions. But the Dodd-Frank Act placed an overall cap on the fees, and the banking industry has responded by eliminating the discounts.
"There will be some unhappy parties, as there always is when the government gets in the way of the free-market system," says Chris McWilton, president of U.S. markets for MasterCard Inc. He said the company decided that it couldn't sustain the discounts under the new rate model because the old rates had essentially subsidized the small-ticket discounts.
Merchants now are trying to offset their higher rates by raising prices, encouraging customers to pay in cash or dropping card payments altogether.
Redbox, a unit of Coinstar Inc. that rents movies through vending machines, says it is raising prices by 20% to $1.20 a movie starting next month due to higher costs, including debit-card fees. The company declined to specify how much of the increase was due to higher fees.
Dairy Queen recently told owners of its food franchises to consider offering discounts or incentives to steer customers away from debit cards. The company suggested that franchisees install small placards that say "due to the rising cost of payment card acceptance, we kindly ask you to pay with cash—especially for purchases under $10," according to a three-page memo that was reviewed by The Wall Street Journal.

How Less Is More

The Dodd-Frank cap on debitcard fees is leaving some small merchants paying up:
  • 44 CENTS: The average merchant debit-card fee before new Fed rules took effect Oct. 1
  • 6 to 7 CENTS: Fee some vending machine operators were paying before new rules, thanks to discounts offered by MasterCard and Visa
  • 21 CENTS: Fed cap — and the amount many small merchants pay now that so-called small ticket discounts have been eliminated
Source: WSJ research
A spokesman for American Dairy Queen Corp. in Minneapolis declined to comment on the memo.
The development is a consequence of last year's Dodd-Frank law that included a cap on merchant debit-card fees, known as interchange. The Federal Reserve capped merchant debit card fees at 21 cents per transaction—plus the potential of a few cents more to cover fraud costs—starting Oct. 1, down from an average 44 cents.
The debit-card part of the law has been a particularly prickly issue. Banks fought the new cap, which they say will cost the industry more than $6 billion a year. Banks recently tried to make up some of those anticipated losses by charging consumers for debit cards, but they quickly abandoned that plan due to customer outrage.
Visa Inc. and MasterCard responded to the law by eliminating the small-transaction discounts. The card networks had offered those merchant discounts to encourage greater use of debit cards for small transactions. Visa and MasterCard set interchange fees, which are collected by the card-issuing banks. Visa and MasterCard get money each time a card is swiped.
Merchants lobbied hard for a cap on debit-card fees, saying they would reduce prices if their costs fell. Instead, many say that the companies that process their debit-card transactions aren't passing on the federally mandated savings, or are raising fees on other services.
Sen. Richard Durbin (D., Ill.), who initiated the push to overhaul debit-card fees, declined through a spokesman to comment on the consequences of the law. Sen. Durbin was so influential in the measure that it is now widely referred to as "the Durbin amendment."
 
A new debit-card law that was supposed to reduce costs for merchants is taking a bite out of consumer wallets instead. Robin Sidel has details on The News Hub.
Jim English, who works with a group of 17 vending-machine operators, says that their interchange fees have jumped from roughly six or seven cents a transaction to the federally regulated 21 cents. About 150,000 U.S. vending machines accept credit and debit cards.
"Overnight, the variable costs of a transaction have tripled," says Mr. English, who runs a marketing company that devises payment programs for vending machines. Some machine operators will raise prices and offer 25-cent discounts for cash starting in January, he says.
USA Technologies Inc., which provides payment systems for vending machines and other self-service kiosks, has stopped accepting MasterCard debit cards as a result of the law. The company says it negotiated its own deal with Visa that is lower than the rate it was paying before the new law.
Mr. Scherr, the coffee shop owner, says that debit-card fees at one of his five stores rose to about 4.5% of sales from 3.5% of sales in the month after the new law took effect. "It's a killer for me," says Mr. Scherr, who estimates that 95% of his sales are under $15.
In the meantime, Mr. Scherr is weighing whether the expense of an ATM would justify its installation. If he gets one, he says he plans to "stick a sign on top of it, calling it a 'Durbin ATM.'"

URL: http://online.wsj.com/article/SB10001424052970204319004577084613307585768.html

Sunday 4 December 2011

Visa and Mastercard – safer ways to benefit from increased holiday sales?

Thanksgiving weekend retails sales exceeded all expectations. Some retailers were big winners, whereas a few of them missed the boat. If you are betting on increased holiday sales, but do not want to gamble on specific retailers or credit card companies, perhaps you should take a look at Visa (NYSE:V) and Mastercard (NYSE:MA).

Both companies process electronic payments, i.e. credit cards and make their money but by taking a cut of each transaction.
Neither company assumes any credit risks, unlike financial institutions which actually extend credit to consumers, such as Capital One (NYSE:COF) or Chase (NYSE:JPM).
Whether consumers can pay their credit card bills when they become due or not, Visa and Mastercard will not care. They will have pocketed their slice of the transactions anyway.
Bear in mind, however, that both companies operate globally, so a potential global slowdown might negatively impact their growth. At the same time, more and more people in the world are switching from cash to credit and debit cards.

URL: http://www.tradingnewsbulletin.com/2011/11/visa-and-mastercard-%E2%80%93-safer-ways-to-benefit-from-increased-holiday-sales/

Saturday 26 November 2011

Merchants Push Visa, MasterCard For Surcharging Rights

NEW YORK (Dow Jones)--Consumers could face extra charges at the cash register if merchants have their say in a long-standing battle with the largest credit-card companies.
Retailers for years have wanted the ability to tack on a fee when a customer swipes a credit card, but Visa Inc. (V) and MasterCard Inc. (MA) don't allow it. Ten states, including California, Colorado and New York, also have laws that prohibit so-called checkout fees.
The card companies, which argue surcharging harms consumers, could ease up on their rules against the practice if they settle several lawsuits brought by supermarkets, convenience stores and other retailers.
"Recent checks indicate that part of a potential settlement in the ongoing merchant litigation...could include rule changes allowing merchants to surcharge consumers on credit card transactions," Jason Kupferberg, an analyst with Jefferies Group, wrote in a research note this week.
A Visa spokeswoman did not respond to a request for comment this week. A MasterCard spokesman declined to comment on the research note or whether a settlement was likely.
Visa and MasterCard already allow merchants to offer discounts for paying with cash and check and expanded those rights under a settlement approved with the Justice Department in July.
But merchant groups argue surcharging, as opposed to discounting, could better help retailers defray the costs of accepting cards, which they say have driven up the prices consumers pay for their goods.
Surcharging is "a remarkably strong tool to kind of guide consumer behavior to lower-cost payment options," said Brian Dodge, senior vice president of communications and state affairs at the Retail Industry Leaders Association, a trade group that represents merchants.
Payments groups argue merchants don't want to pay their fair share for card acceptance, which they say generates increased sales for retailers.
"Retailers benefit (from) card acceptance," said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents Visa, MasterCard and several large banks. "They just don't want to pay for that. They want their customers to pay for that instead."
The possibility of merchant surcharging comes after Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and other big banks scrapped plans to charge their customers a monthly fee for debit-card use amid consumer backlash.
Retailers could potentially charge a fee on each transaction made with a credit card. In Australia, where merchants are allowed to surcharge, the average fee charged to customers is 1.9% on transactions made with a Visa credit card and 1.8% on MasterCard transactions, according to Kupferberg, citing data from research firm East & Partners.
Such a move could prompt consumers to avoid using cards, which would put a dent in the transaction volume that drives revenue for Visa and MasterCard.
"I would definitely use cash more frequently than I do now," said Richard Goldstein, 23, who uses a Visa credit card for most purchases to earn rewards from his bank. "If I have to pay more for using a credit card, it's not worth it."
The no-surcharge rules are one of several grievances that Kroger Co. (KR), Payless ShoeSource, Safeway Inc. (SWY) and other merchants have raised in more than 50 lawsuits filed since 2005. They also argue that Visa, MasterCard and several banks that issue their cards have violated antitrust laws by fixing the fees that merchants pay to accept cards at anti-competitive levels.
The companies deny the allegations.
In addition to Visa and MasterCard, the suits name Bank of America, J.P. Morgan Chase & Co. (JPM), Wells Fargo, Capital One Financial Corp. (COF), Citigroup Inc. (C) and other banks.
Merchants paid $48.06 billion in fees on purchases made with Visa and MasterCard credit and debit cards in 2010, up from $41.86 billion in 2006, according to the Nilson Report, a payments industry newsletter.
As part of last year's Dodd-Frank Act, the Federal Reserve Board cut by almost half the amount of fees large banks can charge retailers on debit-card purchases. Those fees, known as interchange, are set by Visa and MasterCard but collected by the banks that issue their cards as revenue.
Visa and MasterCard have allowed retailers to offer discounts to customers for using cash, a practice that some gas stations and restaurants have used for several years. The Dodd-Frank provision also allows merchants to set up to a $10 minimum purchase amount for credit-card transactions.
The Justice Department sued Visa, MasterCard and American Express Co. (AXP) in October 2010, accusing them of handcuffing merchants to restrictive rules in order to accept their cards.
Visa and MasterCard settled the case and agreed to allow retailers to offer discounts and other incentives for using different types of cards. For example, a merchant could offer a cheaper price on goods to customers who pay with basic credit cards instead of rewards cards, which typically cost more for retailers.
American Express is fighting the suit.
Kupferberg, the Jefferies analyst, said if surcharging is allowed, it is unlikely that merchants would widely adopt the practice.
"I think merchants would be concerned about alienating and...confusing their consumers," Kupferberg said in an interview.
The merchant lawsuits have been consolidated in U.S. District Court for the Eastern District of New York. A tentative trial date has been set for September 2012, though Kupferberg said a settlement is the more likely outcome.

http://online.wsj.com/article/BT-CO-20111118-709253.html

Tuesday 15 November 2011

What Buffett sees in DirecTV, Intel and Visa

 I'll spare readers another Warren Buffett lovefest article. Yes, Buffett is a living legend, and yes he is arguably the best investor of all time. But this is nothing new, and there have already been more articles than I can count about the man and his methods over the years. Buffett has been elevated to something akin to a demigod in the minds of many value investors, and the art of "investing like Buffett" has been thoroughly beaten to death by the financial press.
With this as a caveat, I'll acknowledge that yes, I too like to keep tabs on what Buffett is buying and selling.
It is never a good idea to blindly ape the trades of another investor — even one with a track record like Buffett's. Due to the time lag in reporting with the SEC, an investor you follow may very well have sold the position you are copying by the time you buy it. And what makes sense in that investor's portfolio might make no sense at all in yours.
Still, given Buffett's penchant for long investment time horizons, he's a little easier to follow than most. And again, his track record over the years make him a man worth watching. Imagine my pleasure this afternoon when I saw Berkshire Hathaway's updated portfolio holdings for the third quarter of 2011. Three out of Buffett's five new additions were Sizemore Investment Letter recommendations ( see Covestor portfolio based on the SIL). Buffett initiated positions in SIL recommendations DirecTV DTV +0.64% , Intel INTC +0.04% , and Visa V -0.07% . His other two additions were pharmacy chain CVS CVS -0.49% and defense contractor General Dynamics GD -0.99% .
While I was not invited to Buffett and partner Charlie Munger's strategy sessions before these purchases were made (I'm sure my invitation was lost in the mail), I have a pretty good idea of what Buffett sees in DirecTV, Intel, and Visa. Each is a leader in its respective industry, and all three benefit from durable, long-term macro trends.
Let's start with DirecTV, the world's largest provider of paid satellite television. Given that TV-over-internet options like Netflix NFLX +0.07% and Hulu are increasingly crowding the turf of traditional paid TV — and given that the paid TV market in the United States is already saturated — Buffett's choice here might raise a few eyebrows. I can assume that Mr. Buffett's rationale was the same as my own: DirecTV is a direct play on rising living standards in the fast-growing markets of Latin America, where it already has 11.1 million subscribers (vs. 19.8 million in the United States). Latin American revenues were up 46 percent in the 3rd quarter, due primarily to subscriber growth. But even in the United States — where everyone already has paid TV service in one form or another — revenues were up 8 percent. Not bad, given the precarious financial situation of the average American. DirecTV is also very reasonably priced at just 10 times expected 2012 earnings .
Moving on to Intel, my only question to Buffett is "What took you so long?" Intel absolutely dominates the market for computer processor chips. But this very strength is what has caused investors to shun Intel. Everyone knows the PC is dead. Smart phones and the iPad killed it. And given that Intel is still quite weak in the mobile market, the company is resigned to be a slow-growth behemoth. Who wants to own a dinosaur like Intel? That story would seem to make sense at first.
The problem is that it's simply not true.
The PC is far from dead. Smart phones and tablet computers are growing at a much faster rate, of course. And the PC market does depend more heavily on the corporate and enterprise market, which is not in the best of shape in this economy. But tablets and smart phones do not replace a computer for most users. And in most emerging markets, PCs are still very much a growth industry. Intel's revenues and earnings are growing at 28 percent and 17 percent year over year, respectively. And that is in near recessionary conditions. Meanwhile, the stock trades at just 9 times expected 2012 earnings and yields 3.4% as of 11/14. At current prices, I consider Intel a safer investment than most AAA-rated bonds.
Finally, we come to Visa. Visa and rival MasterCard MA +0.05% — also a Berkshire holding — have become somewhat trendy of late, but it wasn't like that for most of the year. Regulatory uncertainty cast a pall over credit card stocks, as did fears of a consumer slowdown. Yet investors who were, in Buffett's words, greedy when others were fearful did quite well in Visa and MasterCard. Both are among the best-performing stocks so far in 2011 .
Visa and MasterCard benefit from two powerful macro trends — the transition to a global cashless society and the rise of the emerging-market middle class. As electronic payments become a larger share of commerce, credit and debit cards — as well as newer payment methods such as PayPal — will increasingly replace cash and checks. And while this process is well on its way in the United States and other developed markets, it is only just beginning in most emerging markets. This is a trend that will be with us for a while.
Visa trades for 14 times expected 2012 earnings , which is a bargain for a company with Visa's brand, financial strength and growth prospects. DirecTV, Intel, and Visa are all long-term holdings of the Sizemore Investment Letter. And while Buffett's reasons for purchasing may have been very different from our own, we're glad to see the Oracle of Omaha sharing our enthusiasm. 

URL: 

Wednesday 9 November 2011

You can't bank on free speech

The banks, payment and credit card companies support extremist organisations by authorising transfers and donations to them. You can use VISA and MasterCard to donate to the Ku Klux Klan and the English Defence League. You can donate to Aryan Nations, a white supremacist organisation, despite being designated a "terrorist threat" by the FBI.
VISA and MasterCard do not mind if you decide to use your cards to buy pornography on the internet or a rifle identical to the one used by the right-wing extremist Andreas Breivik to murder 69 people in Norway. To justify such associations the banks erect a facade of political neutrality. But there is one conspicuous exception where the finance companies show their true face.
The extrajudicial banking blockade imposed upon WikiLeaks by VISA, MasterCard, Bank of America, Western Union and PayPal is unique and has been in place for almost a year.
This is an attempt against the very survival of the organisation as WikiLeaks depends entirely upon donations for its operations. Already this blockade has stripped away 95 per cent of its revenues. This is an historic act of censorship. Never before has an organisation dedicated to the fght for justice and basic rights; transparency, freedom of information, freedom of the internet and freedom of expression been hit with such a vicious attack.
There is more at stake here than simply the survival of WikiLeaks. When financial institutions decide to make it very difficult or almost impossible for you to make a donation they are infringing upon your basic human rights. They are stopping you from expressing your support for a cause.

The banking blockade of WikiLeaks might be a first but it will not be the last if it goes unchallenged.
Will the banks decide to block donations to Amnesty International, Greenpeace or Reporters Without Borders? Will they decide to stop processing transaction to media organisations that sell content on the internet? Or even more serious; will the threat of such a blockade stop any organisation, relying on donations, from being critical of the financial powers?
With some notable exception, there has been an absence of mass critical reporting on this blockade in the mainstream media. VISA, MasterCard, Bank of America, Western Union and Paypal get away with declining to comment or by making vague references to illegality by WikiLeaks.
'Banksters'
This is easily refuted as WikiLeaks has not been convicted or charged with any wrongdoing in any jurisdiction. Even the Danish sub-contractor of VISA in Europe found nearly a year ago that nothing in WikiLeaks operations contravened laws or VISA regulations.
Moreover, despite political pressure, Timothy Geithner, the US Secretary of the Treasury, found in January 2011 that there were no lawful grounds to blacklist WikiLeaks and its publishing is protected by the 1st Amendment.
And yet, the banking giants of this world continue to impose this unlawful and unethical blockade. Fighting the blockade is a matter of priority for WikiLeaks but the outcome goes far beyond the interest of the publishing organisation. The first legal step in the fight has already been taken by asking for the intervention of the competition department of the European Commission. It is primarily aimed at VISA and MasterCard, the American companies who together process 97 per cent of European card transactions. Further steps are being prepared.
I am no stranger to the devastating effect of the banks. My home country Iceland is still suffering from the aftermath of the total collapse of the banking sector in October 2008. Although the Icelandic bankers claim to have been victims of outside forces, secret documents revealed by WikiLeaks show a different story.
WikiLeaks has published hundreds of documents exposing corruption and illegality within the banks. Initially bank secrecy had the aim to protect the privacy of costumers. Now it has become a tool to hide the wrong doing of the banks themselves at the expense of their account holders and as we have seen recently, the population at large.
Corrupt bankers (or "banksters", as they are called in Iceland) have an interest in silencing WikiLeaks as is evident in the unprecedented illegal steps taken by VISA, MasterCard, PayPal, WesternUnion and Bank of America.
We call upon everyone to assist us in this important fight. We have seen clearly what bankers' greed can do to our economies. We cannot allow them to directly infringe on our basic human rights.

URL: http://english.aljazeera.net/indepth/opinion/2011/11/20111189344715970.html

Tuesday 8 November 2011

Visa And MasterCard Battle Price-Fixing Litigation

Visa (NYSE:V) and MasterCard (NYSE:MA) were accused of price fixing by a trade group representing operators of automated teller machines. Visa and MasterCard require ATM operators to levy a service fee for any transaction at an ATM that is no less than the amount charged at that ATM for a Visa or MasterCard transaction even for transactions that don’t use the companies’ networks. [1]
In February this year, Visa and MasterCard were sued by merchants over swipe fees and the two companies have put any potential settlement of price-fixing litigation by merchants at about $4 billion. [2] If there is a negotiated settlement with all plaintiffs, MasterCard estimates its possible loss at $500 million.
According to MasterCard, it is not possible to put an upper limit on this loss due to the significantly higher demand by the class plaintiffs, which are not acceptable to the company. Visa and MasterCard argued that they can’t be accused of a conspiracy because the merchants don’t directly pay the interchange fees on payment-card purchases.
We have a price estimate of $90 on Visa, about the same as the current market price. We have a $350 estimate for MasterCard, which is slightly below the market price.

URL: http://seekingalpha.com/article/306288-visa-and-mastercard-battle-price-fixing-litigation

Monday 7 November 2011

Smart Investors Are Switching to Plastic: MA, V, AXP

If consumer sentiment soured last quarter, it appears that MasterCard (MA) cardholders were curiously immune. Earlier this week, the company announced third-quarter revenues were up 27%, and the dollar volume of purchases made using MasterCard-branded credit and debit cards rose 18%. Earnings per share were up an almost mind-blowing 43%. Not bad, given that we might technically be in a recession. MasterCard’s results followed stellar (if slightly more modest) results from rival Visa (V). For the quarter ended September 30, Visa earnings per share were up 20%. Most companies would kill for 20% EPS growth; only when compared to MasterCard does it look a little shabby.

American Express (AXP), MasterCard and Visa’s smaller rival that caters primarily to business customers, reported earnings last month. Earnings per share were up 14% for the quarter. Again, not bad given the condition of the economy.

Figure 1: MasterCard, Visa, and American Express


Not surprisingly, all three card stocks have enjoyed a healthy rally this year. MasterCard is the clear winner, up nearly 70% year-to-date, but Visa too has had a nice run. Both of these stocks had been held back by uncertainty surrounding the implementation of the Dodd-Frank Durbin Amendment’s restrictions on debit card swipe fees. (American Express was unaffected, as the company issues only credit cards and not debit cards.)

In lumping American Express with MasterCard and Visa, we’re not quite comparing apples to apples. AmEx actually makes loans and accepts credit risk. MasterCard and Visa do not; they simply allow banks to issue credit cards branded with their logos, and the issuing banks accept the credit risk. MasterCard and Visa also get a significant amount of their revenues from debit cards; American Express does not.

So, while I consider America Express “safe” in that its clientele tends to be high-quality borrowers, without a debit card business I consider the company’s growth to be limited. Thus, we’ll focus only on MasterCard and Visa.

Some of the rocket-like outperformance of these stocks this year was thanks to the Durbin uncertainty being lifted (note the vertical spike in both MasterCard and Visa in late June after the Fed’s favorable ruling), but there also are two powerful tailwinds supporting these companies:

  • The macro move towards a global cashless society.
  • The rise of the emerging-market consumer.
Yes, I realize the world will never truly go “cashless.” Many shoppers appreciate the anonymity of paying with cash, and cash in some physical form probably always will be with us. Still, the percentage of transactions settled with “plastic” or through other electronic means grows every year, and the continued growth of Internet commerce will only speed this along.

By some estimate, as much as 40% of transactions in the U.S. still take place with cash or paper checks, and the percentage is significantly higher in most emerging markets. Suffice it to say, MasterCard and Visa will have healthy demand for their credit and debit cards for the foreseeable future, regardless of what happens to the economy. If retail sales were to experience zero growth in the years ahead, MasterCard and Visa would be able to enjoy at least modest gains purely from consumers switching to plastic from cash or checks.

MasterCard and Visa also are well positioned to profit from the rise of the new emerging-market middle class. Visa gets close to half of its revenues from outside the United States, and MasterCard gets more than half. Much of this is from the fast-growing economies of Asia, Latin America and the Middle East. Expect to see these percentages rise in the years ahead. While the U.S. and Europe remain mired in a cycle of debt deflation, emerging markets continue to grow, and millions of people formerly trapped in poverty join the ranks of middle class consumers every year.

Neither MasterCard nor Visa are “cheap” in strict value-investor terms; the companies trade at 17 and 16 times their respective 2012 earnings estimates. Still, this slight premium is worth paying for two high-quality, high-growth companies supported by long-term trends.

URL: http://www.gurufocus.com/news/151398/smart-investors-are-switching-to-plastic-ma-v-axp

Visa and MasterCard Debit Cards

Visa and MasterCard have both confirmed that they are looking into offering their debit cards in Canada. These would be similar to the Interac cards that we’re familiar with here. Interac is a non-profit organization, owned by the banks and credit unions, its fees are based on the cost of processing transactions.
While increased competition is normally good for the consumer and can lead to lower prices, in this case it will likely mean higher fees. These fees would be charged to the merchants that accept the cards and could easily by twice the amount of the current Interac fees. While the customer won’t be directly paying these fees, the merchants will likely pass this expense on to the customer through higher prices.
There are already a couple signs that we’re in for higher merchant fees in Canada.
  • Canada’s existing debit system is “broken,” said Kevin Stanton, president of MasterCard Canada, saying it’s one of the few countries in the world where a non-profit monopoly controls the market, resulting in irrational pricing that precludes true market competition. – Toronto Star
  • Interac has asked the Competition Bureau about restructuring itself as a for-profit entity to compete with Visa and MasterCard, which are trying to increase their share of the debit card market. – Toronto Star 
    URL: http://canadianfinanceblog.com/visa-and-mastercard-debit-cards/

Friday 4 November 2011

Meredith Whitney Downgrades Visa, MasterCard to ‘Outperform’

Nov. 3 (Bloomberg) -- Meredith Whitney, the bank analyst who predicted “hundreds of billions of dollars” of municipal defaults, downgraded Visa Inc. and MasterCard Inc. to “outperform” from “buy,” an employee of her firm said.
Meredith Whitney Advisory Group cut the two companies today, Marc Lombardo, a research analyst, said in a phone interview. The research firm has a five-tier rating system, with “buy” at the top, followed by “outperform.”
Whitney had “buy” ratings on Visa and MasterCard since she started coverage in March 2010, according to data compiled by Bloomberg. She called Visa her “single best buy” during an interview with Bloomberg Radio on May 4, 2010. The stock had climbed 3.5 percent since then through yesterday, compared with a 5.5 percent gain for the Standard & Poor’s 500 Index.
Visa and MasterCard, the world’s biggest payments networks, plunged last year after U.S. lawmakers approved caps on debit- card transaction fees as part of the Dodd-Frank Act. The shares rebounded this year as consumers worldwide continued to shift to plastic from cash and checks.
MasterCard advanced 1.7 percent to $363.75 at 1:37 p.m. in New York after surging 60 percent in 2011 through yesterday, the top performance in the 75-company S&P 500 Information Technology Index. Visa, the index’s fifth-biggest gainer, climbed 1.9 percent to $93.19 after advancing 30 percent this year.
James Issokson, a spokesman for Purchase, New York-based MasterCard, and Erica Harvill of San Francisco-based Visa, declined to comment.
Whitney became a celebrity during the financial crisis after she correctly predicted that Citigroup Inc. would cut its dividend. Her call last year that there would be a wave of state and local government bond defaults has so far proved unfounded. Defaults totaled $1.13 billion in 2011, compared with $4.25 billion for all of 2010, Bank of America Corp. said in a Sept. 23 research note.

URL: http://www.businessweek.com/news/2011-11-03/meredith-whitney-downgrades-visa-mastercard-to-outperform-.html

Visa, MasterCard Estimate Potential Fee Settlement at $4 Billion

Visa Inc. (V) and MasterCard Inc. (MA), the world’s biggest payment networks, put any potential settlement of price-fixing litigation by merchants at about $4 billion.
MasterCard “extrapolated an estimate of a reasonably possible loss of at least $500 million if there is a negotiated settlement with all plaintiffs,” MasterCard Chief Executive Officer Ajaypal S. Banga said on an earnings conference call with investors yesterday.
In February, Visa, MasterCard and the banks being sued by merchants over swipe fees, or interchange, agreed that San Francisco-based Visa would be responsible for two-thirds of any settlement and Purchase, New York-based MasterCard would be responsible for about one-eighth. Visa has a litigation escrow account with $2.7 billion in cash available, it said in a regulatory filing. Those figures put a potential settlement at $4 billion.
The opposing parties yesterday argued before U.S. District Judge John Gleeson in Brooklyn, New York, on why he should rule in their favor without the need of a trial in the antitrust litigation, begun in 2005.
Banga didn’t say that any settlement was imminent, either in the class action or in suits brought by individual merchants including Publix Super Markets Inc. (PUSH), the Lakeland, Florida-based supermarket chain, and Rite Aid Corp. (RAD), the Camp Hill, Pennsylvania-based drugstore chain.

‘Substantial Progress’

“While we’ve made substantial progress with the individual merchant plaintiffs, there has not been similar progress with the class plaintiffs,” he said. “At this time, it is not possible to put an upper limit on this loss due to the significantly higher demands by the class plaintiffs, which are unacceptable to MasterCard.”
The merchants estimate damages in the case “will range in the tens of billions of dollars,” according to their complaint.
Visa and MasterCard argued they and banks including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Citigroup Inc. (C) can’t be accused of a conspiracy because the merchants don’t directly pay the interchange fees on payment-card purchases.
They also argued that the accusations are covered by a settlement in previous litigation and that the payment-card operators are now public companies, which set the fees themselves, rather than joint ventures of the banks.
The interchange fees on credit cards, which average about 2 percent of the purchase price, add up to $40 billion a year for retailers, not including debit cards.

‘Result of Competition’

“The level of interchange is not the result of any anticompetitive conduct,” Peter E. Greene, a lawyer for JPMorgan, told Gleeson yesterday. “That level is the result of competition.”
Greene is a partner at Skadden, Arps, Slate, Meagher & Flom LLP in New York.
“The defendants’ rules and interchange fees increase merchants’ costs to accepting payment cards, and that shows harm to competition,” K. Craig Wildfang, a lawyer for the merchants, told Gleeson.
The lawsuit threatens a revenue source for banks that U.S. lawmakers left untouched in passing the Dodd-Frank Act financial overhaul last year. Congress opted to cap only debit-card interchange fees, which typically had cost merchants about half of what they pay to accept credit cards. The debit caps may cut annual revenue at the biggest banks by $8 billion, according to data compiled by Bloomberg Government.

Summary Judgment

Both sides have asked Gleeson for summary judgment in their favor now that discovery, or information-gathering, is done. They say a trial isn’t needed, at least on most counts, because there are no facts in dispute for a jury to decide. Gleeson said yesterday that he would rule on the motions at a later date.
The lawsuit contains allegations that the card companies’ rules, including those prohibiting merchants from steering customers to cheaper forms of payment, violate U.S. competition law. Last year, Visa and MasterCard settled with the U.S. government on such anti-steering allegations. New York-based American Express Co. (AXP), the biggest credit-card issuer by purchases, is fighting that suit.
The two sides also debated yesterday whether the networks’ rules preventing merchants from adding a surcharge to payment- card purchases violates antitrust law.
Visa, MasterCard and the banks argued in court papers that the case has to be tossed because the merchants have no standing to bring it: They don’t directly pay the interchange fees -- the merchants’ banks pay them to the cardholders’ banks, which pass them along to the merchants.

Antitrust Violation

They cite a 1977 U.S. Supreme Court decision that said indirect buyers can’t claim they were injured by an antitrust violation.
“Interchange fees are not paid by merchants,” David Graham, a lawyer for Citigroup at Sidley & Austin LLP in Chicago, told the judge yesterday.
Courts have refused to apply the 1977 case when the direct purchaser is a co-conspirator, as the merchants’ banks are, the plaintiffs argue.
“It’s undisputed that it’s merchants who pay the fee,” said Wildfang, a partner at Robins, Kaplan, Miller & Ciresi LLP in Minneapolis.
In 2003, Visa and MasterCard settled a separate antitrust class action, called In re Visa Check, for $3 billion. That case targeted debit-card rules.

Litigation Releases

As part of the settlement, the merchants can’t sue over conduct occurring before 2004. The defendants argue that release covers their current rules, which date from before 2004.
“Plaintiffs do not challenge new conduct,” said Mark Ladner, a lawyer for Bank of America at Morrison & Foerster LLP in New York. “They simply challenge continued adherence to those rules.”
The merchants said they are alleging new antitrust injuries that came after the rules were reauthorized and new fee rates established.
The defendants also argue the banks no longer control the payment-card companies now that they are publicly traded, and don’t control the rate of the interchange fees. MasterCard conducted an initial-public offering in May 2006, Visa in March 2008. Before that, they were joint ventures owned by the banks.
Merchants argue the banks continue to control rules and interchange rates in a way that restrains competition or at least threatens anticompetitive effects.
“Visa and MasterCard were formed by competitors,” Wildfang said. “The defendants continue yesterday to abide by those rules.”
The merchants are also seeking to have the IPOs unwound, contending they lessen competition. Gleeson previously dismissed that argument, though he allowed the merchants to re-file it.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-1720, U.S. District Court, Eastern District of New York (Brooklyn).

URL: http://www.bloomberg.com/news/2011-11-02/visa-mastercard-put-potential-price-fixing-fee-settlement-at-4-billion.html

Thursday 3 November 2011

MasterCard In, Visa Out on Huntington's Debit Cards

MasterCard Inc. has won branding rights on the debit-card portfolio of regional bank Huntington Bancshares Inc., a coup for the transaction processor as it tries to steal share from larger rival Visa Inc.
Huntington said Thursday that it is replacing its customers' Visa debit cards with MasterCard-branded Platinum debit cards and expects the conversion to be done by Nov. 1. The portfolio includes about 1.5 million consumer and business debit cards.
"This is a big deal for us and a pretty big deal in the universe of card conversions as well," said Steve Steinour, chief executive of the Columbus, Ohio-based bank.
MasterCard, which has a small share of the debit-card market today, has been working to increase that business in the face of new federal restrictions on fees. The company said it is continually pursuing potential deals with banks but has no other U.S. debit portfolio wins to announce in the near term, said Chris McWilton, president of U.S. markets at MasterCard.
Huntington's debit-card customers made $6.7 billion in purchases in 2010, according to Nilson Report, a payments industry newsletter. MasterCard's U.S. debit purchase volume was $333 billion in 2010 compared with Visa's debit purchase volume of $1.05 trillion, according to Nilson.
A spokesman for Huntington declined to say how long its contract with MasterCard lasts but such agreements can run five to seven years in some cases. Financial terms of the contract weren't disclosed. The deal doesn't affect Huntington credit cards, which are issued by a Bank of America Corp. unit and include Visa's and MasterCard's brands.
While the logos of Visa and MasterCard appear on banks' credit and debit cards, the companies don't lend to consumers. Rather, they help process transactions made by the customers of their client banks.
"The more debit cards that have MasterCard's logo on them, the more payment volume and transactions MasterCard will be processing, and therefore the more revenue and profit MasterCard will be earning," said Jason Kupferberg, an analyst with Jefferies Group Inc.
A Visa spokesman declined to comment.
Executives at Purchase, N.Y.-based MasterCard and analysts have said its efforts could get a lift from the Durbin amendment, a provision in last year's Dodd-Frank financial regulation law that ushered in new rules for debit-card processing.
In addition to capping the fees that banks can charge merchants when a customer swipes a debit card, it also included provisions that require banks to offer merchants multiple processing options on their debit cards. The rationale for the requirement is having more options would create more price competition, saving money for merchants.
The so-called network exclusivity provision is expected to affect Visa more than MasterCard because Visa has more exclusive processing relationships with banks. MasterCard, which operates a debit processing network called Maestro, could win more deals as a result, analysts said.
MasterCard reports its earnings Nov. 2.
Visa's debit network, Interlink, will likely lose a portion of its transaction volume as a result of the regulations, Joseph Saunders, chairman and chief executive of Visa, said during the company's earnings conference call Wednesday.
But Mr. Saunders said he is confident pricing changes the company is rolling out will help Visa maintain its top position in the market.

URL:http://online.wsj.com/article/SB10001424052970203687504577001763009919848.html?mod=googlenews_wsj

Visa, MasterCard See Potential $4B Settlement

Visa Inc. (V) and MasterCard Inc. (MA), the world’s biggest payment networks, put any potential settlement of price-fixing litigation by merchants at about $4 billion.
MasterCard “extrapolated an estimate of a reasonably possible loss of at least $500 million if there is a negotiated settlement with all plaintiffs,” MasterCard Chief Executive Officer Ajaypal S. Banga said on an earnings conference call with investors yesterday.
In February, Visa, MasterCard and the banks being sued by merchants over swipe fees, or interchange, agreed that San Francisco-based Visa would be responsible for two-thirds of any settlement and Purchase, New York-based MasterCard would be responsible for about one-eighth. Visa has a litigation escrow account with $2.7 billion in cash available, it said in a regulatory filing. Those figures put a potential settlement at $4 billion.
The opposing parties yesterday argued before U.S. District Judge John Gleeson in Brooklyn, New York, on why he should rule in their favor without the need of a trial in the antitrust litigation, begun in 2005.
Banga didn’t say that any settlement was imminent, either in the class action or in suits brought by individual merchants including Publix Super Markets Inc. (PUSH), the Lakeland, Florida-based supermarket chain, and Rite Aid Corp. (RAD), the Camp Hill, Pennsylvania-based drugstore chain.

‘Substantial Progress’

“While we’ve made substantial progress with the individual merchant plaintiffs, there has not been similar progress with the class plaintiffs,” he said. “At this time, it is not possible to put an upper limit on this loss due to the significantly higher demands by the class plaintiffs, which are unacceptable to MasterCard.”
The merchants estimate damages in the case “will range in the tens of billions of dollars,” according to their complaint.
Visa and MasterCard argued they and banks including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Citigroup Inc. (C) can’t be accused of a conspiracy because the merchants don’t directly pay the interchange fees on payment-card purchases.
They also argued that the accusations are covered by a settlement in previous litigation and that the payment-card operators are now public companies, which set the fees themselves, rather than joint ventures of the banks.
The interchange fees on credit cards, which average about 2 percent of the purchase price, add up to $40 billion a year for retailers, not including debit cards.

‘Result of Competition’

“The level of interchange is not the result of any anticompetitive conduct,” Peter E. Greene, a lawyer for JPMorgan, told Gleeson yesterday. “That level is the result of competition.”
Greene is a partner at Skadden, Arps, Slate, Meagher & Flom LLP in New York.
“The defendants’ rules and interchange fees increase merchants’ costs to accepting payment cards, and that shows harm to competition,” K. Craig Wildfang, a lawyer for the merchants, told Gleeson.
The lawsuit threatens a revenue source for banks that U.S. lawmakers left untouched in passing the Dodd-Frank Act financial overhaul last year. Congress opted to cap only debit-card interchange fees, which typically had cost merchants about half of what they pay to accept credit cards. The debit caps may cut annual revenue at the biggest banks by $8 billion, according to data compiled by Bloomberg Government.

Summary Judgment

Both sides have asked Gleeson for summary judgment in their favor now that discovery, or information-gathering, is done. They say a trial isn’t needed, at least on most counts, because there are no facts in dispute for a jury to decide. Gleeson said yesterday that he would rule on the motions at a later date.
The lawsuit contains allegations that the card companies’ rules, including those prohibiting merchants from steering customers to cheaper forms of payment, violate U.S. competition law. Last year, Visa and MasterCard settled with the U.S. government on such anti-steering allegations. New York-based American Express Co. (AXP), the biggest credit-card issuer by purchases, is fighting that suit.
The two sides also debated yesterday whether the networks’ rules preventing merchants from adding a surcharge to payment- card purchases violates antitrust law.
Visa, MasterCard and the banks argued in court papers that the case has to be tossed because the merchants have no standing to bring it: They don’t directly pay the interchange fees -- the merchants’ banks pay them to the cardholders’ banks, which pass them along to the merchants.

Antitrust Violation

They cite a 1977 U.S. Supreme Court decision that said indirect buyers can’t claim they were injured by an antitrust violation.
“Interchange fees are not paid by merchants,” David Graham, a lawyer for Citigroup at Sidley & Austin LLP in Chicago, told the judge yesterday.
Courts have refused to apply the 1977 case when the direct purchaser is a co-conspirator, as the merchants’ banks are, the plaintiffs argue.
“It’s undisputed that it’s merchants who pay the fee,” said Wildfang, a partner at Robins, Kaplan, Miller & Ciresi LLP in Minneapolis.
In 2003, Visa and MasterCard settled a separate antitrust class action, called In re Visa Check, for $3 billion. That case targeted debit-card rules.

Litigation Releases

As part of the settlement, the merchants can’t sue over conduct occurring before 2004. The defendants argue that release covers their current rules, which date from before 2004.
“Plaintiffs do not challenge new conduct,” said Mark Ladner, a lawyer for Bank of America at Morrison & Foerster LLP in New York. “They simply challenge continued adherence to those rules.”
The merchants said they are alleging new antitrust injuries that came after the rules were reauthorized and new fee rates established.
The defendants also argue the banks no longer control the payment-card companies now that they are publicly traded, and don’t control the rate of the interchange fees. MasterCard conducted an initial-public offering in May 2006, Visa in March 2008. Before that, they were joint ventures owned by the banks.
Merchants argue the banks continue to control rules and interchange rates in a way that restrains competition or at least threatens anticompetitive effects.
“Visa and MasterCard were formed by competitors,” Wildfang said. “The defendants continue yesterday to abide by those rules.”
The merchants are also seeking to have the IPOs unwound, contending they lessen competition. Gleeson previously dismissed that argument, though he allowed the merchants to re-file it.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-1720, U.S. District Court, Eastern District of New York (Brooklyn).

URL:http://www.bloomberg.com/news/2011-11-02/visa-mastercard-put-potential-price-fixing-fee-settlement-at-4-billion.html

Tuesday 25 October 2011

Don't Be Surprised With Drops In Price Of Visa And MasterCard Stocks

A trade group representing operators of ATMs has filed a lawsuit against Visa and MasterCard, accusing them of fixing prices and suppressing competition among ATM networks. [1]
The lawsuit was filed in federal court in Washington and alleges that Visa and MasterCard violate antitrust laws by placing restrictions on the prices these independent ATM operators can charge customers using other networks such as STAR or TransFund.

Lawsuit Targets Fee Agreements
Under the network rules of Visa and MasterCard, the service fee for any transaction at an ATM should not be less than the amount charged at that ATM for a Visa or MasterCard transaction. This effectively means that an ATM operator cannot offer customers a discount or benefit for completing a transaction over a network that is less costly to the operator. More competitive pricing might allow these smaller networks to gain market share and more business.
The lawsuit claims that this artificially raises the price consumers pay for ATM service, limits operators’ revenue, and violates antitrust laws. The lawsuit seeks national class action status and would be comprised of independent operators of some 200,000 ATMs in the United States.
Potential Impact on Visa, MasterCard
The lawsuit alleges some serious charges against Visa and MasterCard and the way these companies keep competition at bay. As a result of this lawsuit, the companies’ litigation and settlement expenses will likely rise, taking a toll on the profits that are already under pressure after the Fed put a cap on the fees on debit card transactions.
In the long run, if the courts find Visa and MasterCard to be in violation of antitrust rules, we may see a sharp increase in alternate low cost networks which would bring down transaction charges at ATMs. However there wouldn’t be a significant threat to Visa and MasterCard’s businesses, because their widespread networks across the world would take a new entrant at least a decade to establish.

URL: http://www.forbes.com/sites/greatspeculations/2011/10/18/dont-be-surprised-with-drops-in-price-of-visa-and-mastercard-stocks/

Visa, MasterCard to use buying history for ad targeting?

All the purchases you make with your MasterCard or Visa could be used to provide you with more-targeted ads as you surf the Web, a new report claims.
According to today's Wall Street Journal, the credit card companies are currently trying to work out a system whereby purchases consumers make in a brick-and-mortar store can be used to deliver more effective ads online.
A MasterCard document obtained by the Journal outlines some of the company's plans, which included linking Web users with purchases. According to document, the credit card provider said it believes "you are what you buy."
However, MasterCard told the Journal that the plans included in that document have been shelved because it would have revealed too much information about individual buyers. Instead, the company told the Journal, it is exploring ways to anonymously group a person's purchase history with others to create marketing "segments." That data would then be sold to marketing firms.
Citing a source, the Journal said that Visa is planning a similar service, which would aggregate its customers' purchase history into segments, including location, to make ads more effective at appealing to people in a respective area.
Although those plans might have a profoundly positive impact on the advertising industry, it does raise several privacy concerns. Although companies have long shared customer data with marketing agencies, individual consumers have always been wary of companies peering into where they are, what they're buying, and how much they're spending.
For its part, MasterCard told the Journal that customers have nothing to worry about. For one, the company says, it collects data, such as when a purchase was made and where, on 23 billion transactions, but it never includes who actually makes the purchase. Plus, both MasterCard and Visa, which also collects that information, allow users to opt out of the data collection, if they so choose.
Looking ahead, there's no telling what MasterCard and Visa will do, since, as the companies pointed out to the Journal, their plans are still "preliminary."
However, as the Journal's sources in the advertising industry said, buying history is a potential treasure trove for marketers. And MasterCard and Visa, along with other credit card companies, realize that. What's more, the Journal says, MasterCard could be getting close to selling purchase data through online data auction services, BlueKai and Exelate, though those firms have yet to sign an agreement.
Neither Visa nor MasterCard immediately responded to CNET's request for comment.

URL: http://news.cnet.com/8301-13506_3-20125179-17/visa-mastercard-to-use-buying-history-for-ad-targeting/

Monday 24 October 2011

More Lawsuits Take Aim At Visa And MasterCard ATM Policies

NEW YORK (Dow Jones)--Visa Inc. (V) and MasterCard Inc. (MA) face new lawsuits claiming their fee policies for ATM transactions are anti-competitive.
One suit, filed Monday in U.S. District Court in Washington, D.C., argues the companies, which process credit- and debit-card transactions, prohibit operators of automated teller machines from charging consumers different levels of fees depending on which card network processes their transactions.
"The ATM restraints prevent ATM operators from offering their customers a discount or benefit for completing a transaction over a network that is less costly to the ATM operator, so consumers cannot be rewarded for using a lower cost and more efficient network," the suit said.
In addition to Visa and MasterCard, several smaller debit-card networks offer consumers ATM access, including First Data Corp.'s Star network and Discover Financial Services' (DFS) Pulse network.
A separate lawsuit filed in U.S. District Court in Washington, also naming Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) as defendants, makes similar allegations, Bloomberg News reported Wednesday. The suit claims the banks conspired to fix ATM fees.
Last week a trade group called the National ATM Council Inc. filed a suit against Visa and MasterCard arguing the companies' rules amount to price-fixing. The group, which represents independent ATM operators, says the operators have suffered losses in the "tens of millions of dollars" because of the companies' rules.
A MasterCard spokesman wrote in an email Wednesday that the ATM operators' claims lack merit.
"These rules were put in place to protect consumers from ATM operators seeking to impose discriminatory surcharges on our cardholders," the spokesman wrote. "We believe these important consumer protections must be preserved and we will vigorously defend against the claims brought against us."
A Visa spokesman did not immediately respond to a request for comment.

URL: http://online.wsj.com/article/BT-CO-20111019-712283.html

WikiLeaks says "blockade" threatens its existence


After releasing tens of thousands of confidential U.S. government cables, WikiLeaks needs $3.5 million over the next year to continue operating, Assange said.
Visa and MasterCard stopped processing donations for WikiLeaks in December 2010 after the United States criticized the organization's release of thousands of sensitive U.S. diplomatic cables from its embassies all over the world.
In the 24 hours before credit card donations were blocked, the organization said it had received $135,000. Now, it is receiving on average about 7,000 euros ($9,700)a month.
Assange said there were no lawful grounds for the blockade by Bank of America Corp, Visa Inc, MasterCard Inc, eBay Inc unit PayPal and Western Union Co, which he said had cost Wikileaks 95 percent of its revenue.
"If WikiLeaks does not find a way to remove this blockade, given our current levels of expenditure, we will simply not be able to continue by the turn of the year," Assange told a news conference.
In July, WikiLeaks filed a complaint to the Directorate-General for Competition of the European Commission, saying Visa and MasterCard had breached antitrust provisions set out by the EU Treaty.
Assange, who is fighting extradition from Britain to Sweden, where he faces allegations of sexual misconduct, said he hoped the European Commission would make a decision to hold a full investigation by mid-November.
In interviews last year, Assange said WikiLeaks had extensive internal documents from a bank, believed to be Bank of America, an announcement that knocked 3 percent off the value of the bank's shares.
However, on Monday he said this data was now out of WikiLeaks' hands and in the possession of an unnamed suspended WikiLeaks employee.
"At this stage, we do not believe, unfortunately, that we will regain that material, which is a great loss," he said.
Daniel Domscheit-Berg, who last year was fired by Assange as WikiLeaks' co-spokesman, told Reuters in August that he had destroyed about 3,000 submissions that WikiLeaks had received relating to Bank of America.


URL: http://www.reuters.com/article/2011/10/24/us-britain-wikileaks-idUSTRE79N46K20111024?feedType=RSS&feedName=topNews

Thursday 15 September 2011

UPDATE: MasterCard: Focus On Affluent Customers, Prepaid Cards Key To Growth

By Andrew R. Johnson 
   Of DOW JONES NEWSWIRES 
 
NEW YORK (Dow Jones)--MasterCard Inc. (MA) is emphasizing products aimed at affluent consumers as well as emerging categories like prepaid cards and mobile payments to drive growth, executives said Thursday.
The Purchase, N.Y., credit card company is trying to convert more of the world's transactions from cash and checks to electronic payments and capture a larger share of those transactions, President and Chief Executive Ajay Banga told analysts on a conference call for investors.
Eighty-five percent of retail transactions worldwide are made with cash or check, providing MasterCard with a big opportunity to capture more volume with its credit, debit and prepaid cards, Banga said. The company makes money by processing transactions made with its branded payments cards, which are issued by partner banks.
The company has been putting a bigger marketing effort behind its World Elite program, a rewards program offered to affluent consumers, Tim Murphy, MasterCard's chief product officer, said. The company also this summer launched its Priceless Cities program, which will allow MasterCard customers to gain access to special events using their cards. The first market for the program is New York.
"It's a wide-ranging campaign that goes from television advertising to print to outdoor to make sure that consumers that live in New York and want to enjoy what is available here can really get access to it," said Alfredo Gangotena, chief marketing officer at MasterCard said.
MasterCard hopes such efforts can blunt the effects of new restrictions on debit-card fees that begin taking effect in October. The rules, which were part of the Dodd-Frank Act signed into law in 2010, were finalized by the Federal Reserve Board in June and cut in half the fees banks can charge merchants when a customer swipes a debit card.
The rules also require that banks provide multiple network routing options on their debit cards, which MasterCard executives have said could help it steal share from competitor Visa Inc. (V), which dominates the debit card market.
The additional revenue MasterCard is able to generate by expanding its debit processing services will be incremental but also "high margin, and it will be profitable," said Chris McWilton said, the president of U.S. markets at MasterCard.
Despite recent turmoil in the financial markets and persistent unemployment, MasterCard said its customers are spending.
The volume of U.S. credit card transactions that MasterCard processed in July and August grew 6.5% from a year earlier, compared with a 5.9% increase in the second quarter. The volume of processed U.S. debit card transactions grew 20.1% in July and August, compared with a 16.8% increase in the second quarter.
"While consumer confidence is low, consumers are spending, there's no doubt about it," McWilton said.
MasterCard also is pushing its prepaid card business to spur growth.
Prepaid cards, which traditionally have been offered to low-income or "underbanked" consumers, are also a focus.
Increasingly, interest in prepaid cards "will be driven by banked consumers looking" to divide up and budget their spending, Murphy said.
Earlier this year the company formed a partnership with Wal-Mart Stores Inc. (WMT) to sell versions of the discount retailer's prepaid MoneyCard carrying the MasterCard brand. Wal-Mart also sells versions carrying the brand of MasterCard competitor Visa Inc. (V)
MasterCard's shares were up 1.5% at $342.54 in recent trading.

URL: http://online.wsj.com/article/BT-CO-20110915-712021.html

A First Look at PayPal’s Strategy for Challenging Visa and MasterCard at the Register

PayPal demonstrated today, for the first time, how it intends to provide payments to physical retailers as the race heats up to make wallets and clunky metal registers obsolete.
A sneak peek was offered to merchants today by the eBay-owned company, at a partner event in Rancho Palos Verdes, Calif., and separately to me in one-on-one briefings by executives.
PayPal had said it was going to launch pilot projects later this year, but this is the first time it is discussing how it will approach the digital market and how it will defend itself against incumbent payment providers like Visa, MasterCard and American Express, and new entrants like Google and San Francisco-based Square.
There were roughly 150 merchants present at the event, including Home Depot and Sports Authority.
In the resort’s ballroom overlooking the Pacific Ocean, PayPal set up several user scenarios that are intended to disrupt the way we pay for things online and in stores today, using a variety of technologies.
What stood out was that none of the scenarios required merchants to adopt new infrastructure or buy new terminals. Likewise, customers won’t be required to upgrade their phones or have certain types of bank accounts.
Instead, PayPal users (of which there are 100 million worldwide) will be able to pay by entering a phone number and a PIN code at the existing payment terminals, or by swiping a PayPal-issued card that’s not associated with a bank and does not have an account number printed on the front.
“We are doing something so big that it will change the face of payments,” said PayPal President Scott Thompson. “We can’t be so bold or arrogant to think that you’ll adopt to the standards we’ve created. If we said ‘Throw away your terminals and get a new one, or buy a new phone’ … no one has that level of influence and pull.”
“We will work with the new and the old,” he added. [More information from Thompson in a Q&A can be found here.]
A lot of criticism has surfaced recently that new mobile payment solutions relying on near-field communication will take three-plus years to adopt, because of the infrastructure required by merchants and consumers.
Others have pointed out that near field doesn’t exactly solve a problem for consumers, since swiping cards at retail is easy enough.
“No one is solving the friction in the entire payments process. We are not going to change consumer behavior,” admits Sam Shrauger, PayPal’s VP of global product and experience.
No photography was allowed at the event today, but PayPal walked me through the scenarios, demonstrating how the technology would work. A lot of it was repetitive, so here’s a brief overview:
Grocery store: In this senario, PayPal demonstrated how someone could use their phone number to pay. At the payment terminal, a user will be able to enter their phone number and a PIN code. The purchase will then be applied to the bank account or credit card associated with their PayPal account.
Coffee shop: In this scenario, PayPal demonstrated how it will allow users to continue using plastic cards if they wish. The card will be issued from PayPal and will not have a Visa or MasterCard logo on the front, and will contain no visible account information. As usual, the card will be swiped at the terminal and have an associated PIN.
Hardware store: In this scenario, a customer in a store sees a barbecue set that they’d like to buy. Using the phone, they scan the item’s barcode. PayPal would find that exact product that is in stock at that retailer, and the user would be able to check out in the store aisle and have the item shipped to his or her address, without ever going to the register.
All of PayPal’s scenarios had a few things in common. For example, users would be able to check in to a retailer’s location from the phone, like on Foursquare. That would enable a merchant to know that they are there, so they can interactively offer you coupons, or so you can place an order.
PayPal will also let users immediately apply for credit, so they can buy a new TV and pay in six easy installments!
The mobile application is also front and center in all of these use cases. Users will be able to find nearby retail locations and check in using a mobile application.
PayPal has stitched all of these technologies over the past year from several million-dollar acquisitions, including the acquisitions of BillMeLater, Milo, Where and Zong.
BillMeLater enables PayPal to extend users credit on the fly; Milo allows PayPal to look up the inventory within major stores; Where provides location-based offers; and Zong provides mobile payments using your phone number.



URL: http://allthingsd.com/20110914/a-first-look-at-paypals-strategy-for-challenging-visa-and-mastercard-at-the-register/?mod=googlenews

Saturday 10 September 2011

imsinstantpay: The hidden cost of premium credit cards

imsinstantpay: The hidden cost of premium credit cards: By Stefania Moretti Not all reward point credit cards ar...

The hidden cost of premium credit cards

By

Not all reward point credit cards are created equal.
Some come with hefty interest rates or annual fees, while others cost business owners a small fortune in hidden transaction fees.
New data collected by the Canadian Federation of Independent Business, and shared first with QMI Agency, lists merchant fees for dozens of cards from Visa, MasterCard, American Express, Canadian Tire, President’s Choice and more.
Until now, it’s been difficult for small shop owners to know exactly what they are paying for the chance to do business with various credit card holders. To the naked eye, many premium credit cards are virtually indistinguishable from regular credit cards.
Premium cards don’t come with a warning to business owners, said Dan Kelly, CFIB’s senior vice-president of legislative affairs.
“How could an individual small-business owner hope to understand what is passing through his or her machine?” Kelly said.
Canadians are eager to swipe plastic in exchange for everything from travel miles to free groceries. Studies have shown Canadians collect and redeem more points than their American counterparts.
With a little digging, cardholders can easily compare interest rates and fees associated with premium cards.
The same cannot be said for business owners who want to know the cost of accepting those cards.
CFIB member merchants, for instance, pay credit-card giants Visa and MasterCard between 1.65% and 1.75% to accept basic cards.
Premium cards however costs CFIB business owners anywhere between 1.75% and 2.71%. Interchange rates on American Express cards are even higher.
On a $120 cut and highlights at a typical hair salon that’s an extra $3.25 out of the shop owner’s pocket.
Some so-called “high spend” premium cards charge merchants even higher fees when the shopper exceeds a certain income or spending level.
“That just makes no sense to a merchant,” Kelly said.
But affluent, premium cardholders are the most valuable customers for retailers, said Don Lebeuf, an executive at MasterCard Canada.
“These people will spend 47% more per transaction (on average) than regular cardholders.”
“That’s why there’s a different fee associated with premium cards,” he said, adding that premium cards represent less than 5% of MasterCard’s Canadian client base.
Still, MasterCard values transparency and that’s why the company plans to re-brand its premium cards starting next year, Lebeuf said.
Premium cards are also subject to added fees tacked on by payment companies like Chase Paymentech and Moneris.
“Everybody’s got their hand in the cookie jar and the cookie jar is the small business owner,” Kelly said.
Most cards with “gold” or “platinum” in their name are actually regular cost cards.
Whereas President’s Choice MasterCard, marketed as a budget-friendly card to consumers, charges merchants 2.5% of the purchase price in fees to accept the card.
It’s confusing, Kelly said.
A consumer collecting Aeroplan points with a CIBC Aerogold Infinite Visa can cause a merchant to pay 30% more in fees than one collecting Aeroplan points with a CIBC Aerogold Visa.
“The good news is that there are dozens of credit cards out there offering consumers points without imposing sky-high fees on smaller merchants,” Kelly said.
The TD Platinum Travel Visa and the ATB Gold Cash Back MasterCard for instance don’t impose higher rates on merchants and still provide consumer perks.
Kelly hopes Canadians will check the card in their wallets against the CFIB’s new list of fees to merchants.
“In addition to helping your local entrepreneurs, you’ll be helping keep consumer prices down for us all,” he said.
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Some CFIB member business owners have posted in-store signage encouraging shoppers to pay using lower cost methods such as cash and debit.
While high-cost corporate cards have been around forever, banks have only really begun pumping out premium credit cards to everyday consumers over the last two years, Kelly said.
The Competition Bureau is fighting Visa and MasterCard’s policy of forcing merchants to accept premium cards if they accept regular cards by the same brand.
The complaint was filed at the Competition Tribunal after the federal government’s Voluntary Code of Conduct for the Credit and Debit Card Industry dropped the option from its final draft.
LeBeuf said MasterCard does not support changes that would allow retailers to accept some of its products but not others.
“That flies against our core value proposition to consumers that you can use your MasterCard at any one of the 25 million merchant locations around the globe,” he said.

URL:http://www.torontosun.com/2011/09/09/the-hidden-cost-of-premium-credit-cards