Sunday, November 27, 2005

Crying wolf over credit card fees..

This is a nice opinion on the issue of credit card fees. It warns retailers that suing Visa and Mastercard may eventually hurt them more than they foresee.

The trial lawyers are locked in on Visa and MasterCard because they see dollar signs. The merchants who are buying into these suits are, in their understandable desire to cut costs and maximize profits, being shortsighted. Crippling Visa and MasterCard through regulation or litigation would decrease consumer choice and buying power and ultimately hurt the merchants who are calling for it. The trial lawyers may be their friends on this fight, but seeking legal and regulatory intervention for market advantage is a precedent that large merchants will likely regret in the future.


Australia, where regulators slashed interchange fees well below their market level, the result has been a dramatic decline in cardholder benefits -- reward programs and the like -- and an increase in annual fees. This has driven a double-digit increase in the use of more expensive charge cards from companies like American Express and Diners Club. As a result, merchants are paying more on many transactions, and there is a push for regulation of the three-party payment systems.

In conclusion: betting on regulation and/or regulatory intervention rather than on the forces of the market may be a costly strategy with a high boomerang factor. One may end up with unexpected by-effects....