Mon, Jul 23rd 2007 4:37am
In addition to the added convenience, electronic payment methods promise to reduce costs by saving merchants money spent on handling cash. Well, that's how it's supposed to work in theory. In practice, many merchants don't see much benefit from electronic payments due to onerous interchange fees. While the major payment processors take a cut of every transaction, merchants typically pay a flat fee for all of their cash management needs, which makes cash sales appealing. The current system works well for companies like Visa, Mastercard and American Express, which enjoy a lucrative oligopoly. But for smaller startups developing payment solutions, the economics aren't favorable. Already the EU is looking to crack down on high interchange fees, and although EU regulators are typically much more proactive about such issues than their counterparts in the US, Congress is starting to explore the issue. Either way, if fees remain high in the US, innovation in this area is likely to remain slow.
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