Interchange Is Good for the Industry

want to start by thanking you for producing a great publication. It is not an easy task to bring together folks in our industry, and you do a fantastic job bringing practical information and news with every issue. I suppose you are well aware of that, with your office being packed with all the awards you have won over the years, but it bears going over again. That being said, I have noticed a disturbing absence from your publication. While there has been adequate coverage of the current lawsuits against the [card] Associations and merchant angst against the cost of interchange, I rarely see a rigorous defense of our industry. I would think those of us who have built a career in this business would have a certain incentive to defend it. I generally think that I offer a quality service to my clients and am not ashamed there is a cost for it.

It is never easy to offer unbiased reporting. To cover the class action suit in 10 paragraphs and have a single rebuttal paragraph quoting an unknown Visa representative is not really fair. To dedicate an issue to the rising cost of interchange, without an adequate rebuttal is to lay down to the high-power lawyers. Their corporate sponsors running the lawsuits are trying to dictate how our business is run, and I don't think that is OK.

As an example, the November 28, 2005 issue of The Green Sheet [see "What's at Stake in the Interchange Wars," issue 05:11:02] starts out with a quote stating that if interchange was actually cost based it would disappear. It then goes on to dazzle us with staggering figures: Visa and MasterCard collected $17.4 billion dollars. Left there, what else are we to think? How dare they? Those greedy sons of @#%!.

Forget about going after greedy oil companies; get out the pitchforks, and let's go after Visa. How easily we forget about the cost of running a computer network that handles 1.3 trillion interactions in the U.S. alone. And how much is the benefit of immediate payment worth? (If you thought selling two-day funding was tough, try selling net 60- or 90-day, or five days for checks to clear; there is a value to our service.)

If interchange is high in the U.S., maybe we should look at some of the factors that are involved, like the spiraling costs of fraud and bankruptcy losses. We had 1.78 million bankruptcy filings in the U.S. this year (see www.uscourts.gov/Press_Releases/bankruptcyfilings120105.html). Bankrate.com estimates the average American to have $8,400 in credit card debt (see www.bankrate.com/brm/news/debt/debtguide2004/debt-trivia1.asp).

Simply combining those two facts eats up almost all the $17.4 billion the [card] Associations collected. And this does not account for the losses from death and the uncollectible losses from fraud? A better understanding of intricacies and costs of our industry would better prepare us to service our clients.

We work in the financial services industry. It is a big business, with big numbers. We get excited about million-dollar accounts and billion-dollar portfolios. That is why we are here, doing the various things we do.

It is true there is a cost and overhead to accepting plastic, but there should be a service and benefit to it as well.

Eric Jenks
Total Merchant Concepts

Eric:

Thanks for your kind words and thoughtful letter. You have raised some very interesting issues, which we plan to address further when we explore the subject of interchange in depth in an upcoming issue of GSQ (Vol.9, No.1, 2006). Look for it as a supplement to The Green Sheet this spring.

Editor