An Opinion from a Reformed Libertarian.
There’s good news and bad news.
The good news is that sales of my training manual, Understanding Credit Card Interchange in Card-Not-Present Environments, have increased dramatically. The bad news is that a lot of these sales have been driven by congressional interest in regulating the Interchange rates merchants must pay on credit card sales.
I am often accused of being in the right place at the right time. Better lucky than good – as the saying goes.
Mixed in with the usual merchant and processor want-to-learns, I have been seeing a greater number of sales from the beltway crowd in DC, Virginia and Maryland. They never purchase using their company names. I think they are lobbyists.
Being a merchant, and having been involved in the direct marketing industry for some time, I welcome some type of Interchange relief. Being a libertarian, I get an uncomfortable sensation in my gut every time congress tries to fix anything.
The credit card systems, at least from a technical perspective, are a modern marvel. These “small-i” internets grease the skids for billions of commerce transactions worth trillions of dollars. My guess is that roughly 99.7% of these pass through the system without any type of consumer dispute. Do you really want congress going anywhere near that machine?
That machine, however, is not perfect and Interchange happens to stick out as one of the areas ripe for improvement. In particular, those Interchange rates having to deal with Customer-Not-Present transactions. For years, CNP merchants have paid a “risk premium” on their Interchange rates because of real and perceived fraud concerns. These premiums generally run between 30 and 80 basis points (.30% - .80%), depending on merchant category and transaction type.
This is an expensive premium. In many regards, fraud can be measured by chargeback rates. Across the entire CNP spectrum, fraud as represented by chargebacks is less than 0.5%. What’s more, about half of this fraud is “friendly fraud:”
“I told my husband not to use my credit card! He’s not authorized to use it, and I’m not paying for the charge.”
This, my friends, is not fraud. Dividing 0.5% in half, the real CNP fraud rate approaches 25 basis points. So, you have this average risk premium of about 55 basis points, covering a 25 basis point problem. Things like this need to be fixed. Things like this need to be negotiated. So, Senator Durbin and Congressmen Conyers and Cannon have a good idea! Negotiation. You have to be smart to get into congress. Having congress and the courts run the process, however, is risky business in my opinion.
This problem needs to solved directly between the card Associations and a centralized merchant association. Let’s try like heck to leave government out of it – both Congress and the courts. This is an important warning. Many pundits say that these bills are dead-on-arrival. Every once and a while, though, Congress serves up a surprise. And I can tell you this, Congress is not particularly happy with the banking industry these days. Between “greedy” card-issuer fee policies and the mortgage crisis, Congress might just act with a certain amount of prejudice.
In the mean time, I am commercially happy with this new interest in Interchange. One way or the other, I hope these bills take a long, long time winding their way through Congress.
There’s good news and bad news.
The good news is that sales of my training manual, Understanding Credit Card Interchange in Card-Not-Present Environments, have increased dramatically. The bad news is that a lot of these sales have been driven by congressional interest in regulating the Interchange rates merchants must pay on credit card sales.
I am often accused of being in the right place at the right time. Better lucky than good – as the saying goes.
Mixed in with the usual merchant and processor want-to-learns, I have been seeing a greater number of sales from the beltway crowd in DC, Virginia and Maryland. They never purchase using their company names. I think they are lobbyists.
Being a merchant, and having been involved in the direct marketing industry for some time, I welcome some type of Interchange relief. Being a libertarian, I get an uncomfortable sensation in my gut every time congress tries to fix anything.
The credit card systems, at least from a technical perspective, are a modern marvel. These “small-i” internets grease the skids for billions of commerce transactions worth trillions of dollars. My guess is that roughly 99.7% of these pass through the system without any type of consumer dispute. Do you really want congress going anywhere near that machine?
That machine, however, is not perfect and Interchange happens to stick out as one of the areas ripe for improvement. In particular, those Interchange rates having to deal with Customer-Not-Present transactions. For years, CNP merchants have paid a “risk premium” on their Interchange rates because of real and perceived fraud concerns. These premiums generally run between 30 and 80 basis points (.30% - .80%), depending on merchant category and transaction type.
This is an expensive premium. In many regards, fraud can be measured by chargeback rates. Across the entire CNP spectrum, fraud as represented by chargebacks is less than 0.5%. What’s more, about half of this fraud is “friendly fraud:”
“I told my husband not to use my credit card! He’s not authorized to use it, and I’m not paying for the charge.”
This, my friends, is not fraud. Dividing 0.5% in half, the real CNP fraud rate approaches 25 basis points. So, you have this average risk premium of about 55 basis points, covering a 25 basis point problem. Things like this need to be fixed. Things like this need to be negotiated. So, Senator Durbin and Congressmen Conyers and Cannon have a good idea! Negotiation. You have to be smart to get into congress. Having congress and the courts run the process, however, is risky business in my opinion.
This problem needs to solved directly between the card Associations and a centralized merchant association. Let’s try like heck to leave government out of it – both Congress and the courts. This is an important warning. Many pundits say that these bills are dead-on-arrival. Every once and a while, though, Congress serves up a surprise. And I can tell you this, Congress is not particularly happy with the banking industry these days. Between “greedy” card-issuer fee policies and the mortgage crisis, Congress might just act with a certain amount of prejudice.
In the mean time, I am commercially happy with this new interest in Interchange. One way or the other, I hope these bills take a long, long time winding their way through Congress.