A Finextra member 29 July, 2013, 11:29 0 likes

The simple fact is that busiensses want to maximise their profits and save money wherever they can. It's no wonder that card scheme processing fees are coming under the microscope.

I think the big challenge though is how can schemes realistically drastically cut fees. There are so many different organisations involved in the steps that are undertaken for a card scheme payment, all of which need to get paid, and all of which get paid at the expense of the merchant.

I think the only real solution is for companies to look at other payment payments in addition to the card schemes they currently accept. Mobile is the most obvious, potentially providing them with payment methods that do not involved card schemes, and therefore drastically reduce their transaction costs while adding great value potentially to the checkout experience. In the case of my own company, CloudZync, we dont charge any transaction processing fees at all if the merchant is using our business services, services which are there to help provide better customer services, engagement and increase business efficiency.

A Finextra member 29 July, 2013, 12:11 0 likes

While your suggestion to look at other payment schemes is a sound one, it fails to address these facts:

• people use cards (debit or credit) as these are inherently more safe, secure and convenient than carrying cash around.
• cash usage is on the decline while there is an uptake in card use.
• in most transactions, end users do not shoulder any fees associated with using cards.
• an EU legislation has already been proposed, capping fees that some merchants charge end users when paying via cards (.2% for debit cards, .3% for credit cards). Currently this stands anywhere between 2% - 5%, perhaps more.

While the Starbucks payment model is well and good, for those people who do not top up their Starbucks card/app with cash, take a good long guess at what payment method they use: still cards.

In a perfect world, we all pay cash quid pro quo and everyone (merchants and consumers alike) avoid paying fees. Sadly, that world is long gone...for now.

A Finextra member 29 July, 2013, 12:23 0 likes

I think you are missing the point Im making.

Yes, people are paying with cards, and yes cash is on the decline. But my point is that moblie has the potential (while there is not one way of processing mobile transactions) to offer something new to merchants, providing an alternative to cards, a choice for consumers, a choice which merchants should welcome as it can remove transaction fees.

Choice is the only thing that will help merchants avoid fees. Mobile is a cross-roads for merchants, if they embrace it and its potential, then they can make massive long term savings while increasing customer services etc.

Change doesnt happen over night, its small steps at a time....

A Finextra member 29 July, 2013, 12:25 0 likes

Also, from what I understand the cap is on interchange fees. These fees only make up a part of what a merchant pays in fees, so claims of 0.2% down from 3% for example are simply not going to happen...

Mobile transactions, the consumer wouldnt pay for anything either. Why would they?

A Finextra member 29 July, 2013, 12:34 0 likes

I did not miss your point at all.

I do agree with you on mobile payments, and yes there will be an uptake in this field, but you fail to realise that unless the mobile payment scheme is independent of card schemes, there will always be a fee involved, whether with the merchant, or end consumer, or both.

For the mobile payment scheme to work sans fees, this should be linked to a consumer's bank account, versus a debit (or credit) card. In my limited intelligance, only PayPal I believe is capable of doing this at the moment. All other payment schemes involve a card in some shape or form, a card that is linked to an issuer, where said issuer imposes fees.

And lastly, if the EU proposal becomes legislation, then issuers in the region will have to follow this, even though this is an "attack" on their profits. UK will have to follow as well, unless we eventually opt out of the EU, a topic that merits its own discussion.

A Finextra member 29 July, 2013, 13:13 0 likes

Mobile payments do not need to be linked to a card necessarily, mobile payments schemes can be very different from card schemes (CloudZync for example along with other solution have independent schemes).

Again the mobile payment scheme doesnt necessarily need to be linked even to a bank account directly, there are many other options, and one that always sounds un-popular, and yet is a growing market is pre-paid (probably the most obvious). Pre-paid isnt the only option either, there are others. 

PayPal does have its own special relationship with the banks (which is something that should be questioned really - since no other company is allowed this)

Your right re issuers following this legislation, but as I said  the issuer fee is only a part of the fee that the merchant pays. There are also fees for the aquiring bank and the scheme infrastructure itself. From what I've read, these arent within scope of this legislation.

So in theory, interchange could be dropped to 0% but the aquiring bank (who provide the merchant services to the merchat) could still quite happily charge 2-3+% for the transaction. That means this legislation could potentially change nothing for consumers or merchants, it only hits the issueing bank.

If you believe the legislation is to be capped across the board right back to the merchant, then the amounts being mentioned wouldnt cover the cost of processing the transaction. So, I doubt this is the case. 

This cap could actually be very bad for consumers and mean no change to a merchant. Banks could start charging consumers for the right to have a debit card (which does already happen in some cases), while merchants still see no changes in the fees they are paying on transactions....

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 31 July, 2013, 09:32 0 likes

I believe retailers are charging me too much for milk, bread and many other essential commodities I buy from them. I have a sneaking suspicion that my building owner is overcharging me on my office rent. While I'm at it, let me not forget the MNOs who shouldn't be charging me so much for 3G. Can I now file a lawsuit against all of them now? Right, I thought so, too. Why, then, should courts entertain lawsuits from retailers against card schemes? What's stopping retailers from ditching scheme-issued cards and introducing alternative payments? 

A Finextra member 31 July, 2013, 09:56 0 likes

You can always file a lawsuit, but it doesn't mean it will progress to court. If the lawyers deem the materiality of your claims are little to nil, then it gets thrown out. But no one can stop you from filing.

Also:

• mlik, bread and other essentials - if you're not happy with the price, shop around. Wait for a sale. Or buy in bulk so the per unit price is cheaper.
• office rent - again, the building owner has his price, and you were not required to get this particular space at this specific price. But you decided. The building owner is running a business, and for a business to remain a business, it has to turn a profit. The building and the building owner are not charities.
• MNOs and 3G - did you want your smartphone and all thse apps, or did you need it? There's a major difference. If the latter, then again you would choose an ideal monthly payment plan. But you chose the former. You can negotiate the rates if you want to, but in the end you still pay X amount because you chose.

The courts may or may not entertain the lawsuits, same explanation as in my opening paragraph. But if the materiality is there, then it goes through the process. If the card schemes have nothing to hide with their fee structure, then this will come to light during the proceedings. If proven guilty, then they face the penalty, as with any other business engaging in lawsuits.

In the end, all participants get the pubilicity  and free press space they want or need, good or bad. Any marketing professional can tell you that.

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 31 July, 2013, 10:53 0 likes

By the same token, retailers know about processing fees when they sign up with card schemes, card schemes aren't charities and retailers should ditch card schemes if they find them too expensive. IMHO, the problem is, retailers want to have their cake and eat it too.

A Finextra member 31 July, 2013, 11:00 0 likes

Agree.

Both sides would want to maximise their profits to any (hopefully legal) means necessary. But both sides also need to understand that without each other's business, both would not flourish as they do now.

A Finextra member 06 August, 2013, 14:13 0 likes

Ketharaman, you said "By the same token, retailers know about processing fees when they sign up with card schemes, card schemes aren't charities and retailers should ditch card schemes if they find them too expensive. IMHO, the problem is, retailers want to have their cake and eat it too.".

You're right they did - initially, but then their costs started to be increased without any explanation being given. Premium cards were introduced which carried a fee 0.5% higher than a conventional card. Commercial cards were introduced with higher fees - the retailers received no benefit at all from the introduction of these new cards, just higher costs. And, given the high use of cards in general by their customers, they had no option other than to continue to accept them and either absorb the additional cost or pass them on to all their customers through higher prices at PoS. The EU decision increases transparency and competition in the payments arena. The change is long overdue and good for all consumers.

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 06 August, 2013, 16:22 0 likes

@FinextraM:

TY for the clarifications. However, many other industries - including retail - are equally guilty of the same non-transparent, vendor-lockin practices. My question is, if they're able to get away with their practices despite free market dynamics, why should the courts entertain lawsuits only from the retail industry.