Thursday, January 16, 2003

Visa warns retailers about surcharging: a boomerang?

Australian website The Age reports that Visa is about to send 250,000 retailers information on the credit card surcharge and will tell them that 80 per cent of consumers oppose the fee. This information campaign should be viewed as the part of a larger discussion on reforming the payments landscape.

The funny thing is that whenever credit-card companies chose to enter foreign markets, they always started with rules that had a anti-competitive component. The no-surcharge rule is such an example. It stipulates that a retailer is not allowed to distinguish the price of the good when paid for in cash or by credit-card. It is a very understandable rule from the point of view of a system that is new on the market and requires acceptance by the public. Yet, in the long run it doesn't make sense. Retailers should be allowed to determine their own pricing policy and to include the cost of different means of payments as a part of the total transaction price. This allows consumers to choose between the more efficient/convenient payment mechanism.

In the Netherlands, we've had the no-surcharge rule and it has been abolished. Not that it made a lot of difference. In practice the credit-card acceptance over here is limited to industries/retailers with a considerable margin. And the credit-card itself is not as widely used (60 million trx) as the debit-card (1 billion). So the issue is not top-of-mind and practices differ between retailers. For debit-cards surcharging is even a common practice for those payments below a certain value (mostly 10 Euro). Being out of cash, I bought some lunch refreshments today for 7 Euro and paid the surcharge fee of 10 Eurocent. And in the weekend I often do a cash-back at the local supermarket (that charges me as well). Do I care? In practice I don't, but when interviewed I say I do.

So when I look at the Visa information campaign I wonder: this can't really be an issue ? I may be seeing things upside down from here in the Netherlands, but it looks to me as if Visa abuses the no surcharge rule to influence public opinion. And I'm not sure if that is the proper way to proceed. Would'nt this campaign be viewed by consumers as a waste of obviously abundant resources by card companies that have a quarrel with the RBA? And wouldn't they think that by the looks of it RBA may have been right?

That would then be a fine example of the boomerang-effect.