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.

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