Saturday, November 25, 2006

Interchange under fire at Eu hearing

Last week there was a hearing at the EU on interchange fees. Reuters reported on that:
* The Commission conducted the hearing to let MasterCard reply to allegations that it restricts competition by setting minimum prices retailers must pay. The EU executive is considering abolishing the controversial and complex interbank fees charged by MasterCard, which can differ card by card.

* EU countries, shops and representatives of the airline and petroleum industries sharply criticised MasterCard's fees. A representative of Ikea, the Swedish furniture chain, said it could lower costs on many items, even amid high energy prices, but could not negotiate the fees imposed by MasterCard.

* MasterCard drew a rebuke at a closed European Commission antitrust hearing last week after claiming incorrectly that Britain had dropped an investigation into its fees, people who were present said. Mastercard made the statement near the start of the two-day hearing on Commission allegations that it sets excessive charges on shops and others that accept its credit and debit cards, they said.

This remains an interesting debate. There are quite some cheap shots thrown at Mastercard, but yet again, they are no saints either. Specifically the honour all cards rule could indeed be kicked out. But it remains painful to see grown up people still confuse interbank interchange fees with acquirer merchant service charges. That does'nt help the debate.

My guess? This banging on interchange fee in Europe may result in some changes that in the end hurt the retailers/governments more than they now realize. They're now all in for the card-scheme interchange fee banging experience without realizing the strategic effects of their behaviour. Specifically in terms of increased complexity and higher cost of decision making in the future.

It's a bit like the Netherlands. Retailers kept on nagging for years about POS-service charges (lowest in the world), which in the end lead to a restructuring of the industry so that scheme, processing and acquiring would all be different things. The central coordination concept was exchanged for a market forces dynamic, which means that it is harder to coordinate developments in the terminal market, telco-infrastructure etcetera. Both merchants, telco's and terminal builders have no single point of communication/entry for a debate on POS-issues. And what happens then: here come the retailers again, complaining that banks make life too complex/complicated as a result of the split of processing/acquiring/branding.

Well, you can't have it both ways. If you're really in for market forces rather than the simple life, you have got to buy in to increased complexity and coordination/information costs as well.