High Interchange Fees Help Keep Cash Alive

from the ka-ching dept

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.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Jeff, Jul 23rd, 2007 @ 6:32am

    Cash is King

    It's in the governments best interests to entice vendors to use electronic payments. If you have a electronic record of every transaction it is very hard to try and cheat the IRS. Cash of course you can fib on how much you are selling.

    I'm suprised it has taken the goverment this long to get involved.

     

    reply to this | link to this | view in thread ]

  2.  
    identicon
    The Swiss Cheese Monster, Jul 23rd, 2007 @ 6:41am

    Getting the government involved in this area can only be disaster.

     

    reply to this | link to this | view in thread ]

  3.  
    identicon
    Overcast, Jul 23rd, 2007 @ 6:53am

    I hope the stay high. I still prefer cash.

    Certainly agree - it will be a disaster indeed.

     

    reply to this | link to this | view in thread ]

  4.  
    identicon
    canthy, Jul 23rd, 2007 @ 6:57am

    to crack down on high interchange fees, it is very important for merchants to do business. As it will take a lots time & fees on exchange cash.The regulator should find way to solve this inconvenience, to helps merchants to handle cash in convenience way.

    acb2b.com is an online trading platform focusing on helping small and medium sized U.S companies doing business in China.Choose www.acb2b.com, you will find what is the business going on...

     

    reply to this | link to this | view in thread ]

  5.  
    identicon
    MissingFrame, Jul 23rd, 2007 @ 6:59am

    Self-regulation

    Many places I buy from pass the fees onto their customers, such that if I buy something less than $7 on plastic they charge 25 or 50 cents. The sign and the explanation does a good job of discouraging people from using plastic.

     

    reply to this | link to this | view in thread ]

  6.  
    identicon
    Anonymous Coward, Jul 23rd, 2007 @ 7:27am

    Re: Self-regulation

    That would also explain some shops that impose a minimum purchase amount on card transactions.

     

    reply to this | link to this | view in thread ]

  7.  
    identicon
    Sean, Jul 23rd, 2007 @ 7:37am

    Re: Re: Self-regulation

    Yes for small amounts it is not worth it for them to pay the fee for CCs.

    To keep from paying fees your self never use your card as a Debit entering your pin. It is much safer and they cant charge the fee to you if you select Credit on all transactions.

     

    reply to this | link to this | view in thread ]

  8.  
    identicon
    Luke, Jul 23rd, 2007 @ 7:37am

    Cards

    I don't shop at places that don't take plastic and if I'm going to get charged extra I'm not going to shop there.

    Do away with the evil that is cash. Go to electronic funds to make it more difficult for underhanded/under-the-table cash deals. Also, help cut federal spending by removing the need to design and print annoying paper/metal currency.

    Most of the people I work with (engineers) don't use cash...mostly because no one wants to waste the time to run to the bank/atm and get cash when the card works just fine. The cafeteria here at the main campus didn't take cards until about a year or so ago. Up to that time we would go out and eat some place 3 or 4 times a week...now we eat at the cafeteria regularly.

     

    reply to this | link to this | view in thread ]

  9.  
    identicon
    Uh Ohhh, Jul 23rd, 2007 @ 7:41am

    Cash

    Cash will (should) always be here. If all payments become electronic (convenient) the door is opened to topple a society by simply "pulling the plug" for awhile. You also risk losing control of your funds as when, if you owe taxes and aren't fast enough to make arrangements to pay, they simply take it from your account like happened to my son.

     

    reply to this | link to this | view in thread ]

  10.  
    identicon
    Uncle Sam, Jul 23rd, 2007 @ 7:54am

    Re: Cards

    Do away with the evil that is cash. Go to electronic funds to make it more difficult for underhanded/under-the-table cash deals. Also, help cut federal spending by removing the need to design and print annoying paper/metal currency.

    It's a bit presumptuous of you to assume everyone will go and open a bank account and become part of "the system". Get out from behind your ivy covered walls and listen.

    There is a whole strata of US society that does NOT participate in the banking system. It still amazes me how many people don't have a simple checking account. Instead, they cash paychecks at a check cashing store, and in many cases, pay outrageous fees to do so. These aren't the middle class working people - these are often those barely hanging on. They literally live from paycheck to paycheck, and often are in debt to the canteen truck, the local hospital emergency room, and many others.

    The removal of cash would cripple the US. The day of a cashless society is not going to happen in my lifetime, and I'll say with great certainty, not in yours either, unless you come up with a way to draw these folks into the system, and I think they would resist that with great vigor .

     

    reply to this | link to this | view in thread ]

  11.  
    identicon
    MissingFrame, Jul 23rd, 2007 @ 9:13am

    Re: Re: Cards

    I hate cash too, but being a self-imposed cafeteria prisoner isn't worth it. Besides, when traveling abroad, the best deals are done by cash-only street vendors, and even places that take credit it will take you 4x the transaction time as cash.

    Some day you will be able to hold your thumb up and approve a transaction from 20 feet away, until then, cash is pretty damn convenient.

     

    reply to this | link to this | view in thread ]

  12.  
    identicon
    Anonymous Coward, Jul 23rd, 2007 @ 9:19am

    Re: Re: Cards

    they wouldn't need a back account, you can purchase pre-loaded (and rechargeable) credit cards, so there would be no need to get a bank account and become part of "the system".

    hey, their boss could even just pay them with said pre-loaded credit cards...

    the fact that they (find it acceptable to) pay an outrageous fee to cash their paycheck at a check cashing store proves one thing: they are willing to do so because depositing in a bank account would cost them more (for example collection agencies looking for the money they owe the canteen truck, the local hospital emergency room, and many others, or they might not want to appear on any radar for whatever reason, etc...)

    and what about all the illegal activity (prostitution, drugs, gambling, illegal firearms,...) that would have a major problem in a society where all transactions are traceable...

     

    reply to this | link to this | view in thread ]

  13.  
    identicon
    inc, Jul 23rd, 2007 @ 9:43am

    cash is king

    Everyone takes cash... works when the power is out and a must for hurricanes. Also small merchants will always like cash because it's easier to skim tax free profits from. It's impossible to not report your earning made with electronic payments. While cash it's as easy as tossing the receipt and pocketing the cash. Big merchant probably don't like cash because it's easier to employees to do the same thing...

     

    reply to this | link to this | view in thread ]

  14.  
    identicon
    Unfair, Jul 23rd, 2007 @ 11:16am

    It's true. Interchange is the biggest credit card fee you've never heard of. I'm working with the Merchants Payment Coalition and if you'd like to get involved, please check out Unfaircreditcardfees.com. Congress held an interchange hearing last Thursday and we hope more Representatives will be interested in increased transparency of credit card practices.

    While the actual cost to process credit card transactions has declined, the interchange fees have shot through the roof. Consumers are now bearing the brunt, which amounts to over $30 billion a year.

     

    reply to this | link to this | view in thread ]

  15.  
    identicon
    Aneace, Jul 23rd, 2007 @ 8:23pm

    Payments innovation and high interchange

    Good post, and thanks for the link to my blog. I wanted to add a comment on how high interchange fees could actually force innovation by the payment brands, Visa, MasterCard, AmEx, Discover, etc. All payment brands, not just Visa and MasterCard, compete to get banks to issue cards with their brand, and interchange is one of the most important features that banks look at when choosing a brand. It is doubtful that interchange will simply go away or get dramatically slashed. But as you point out, there in increasing pressure on Visa and MasterCard to satisfy merchants much better than in the past. Rather than seeing interchange get slashed, you can expect to see major innovation and new features created by the payment brands for the benefit of merchants, in order to take the pressure off of interchange. The IPO's of both Visa and MasterCard also push strongly in this direction.

     

    reply to this | link to this | view in thread ]


Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here
Get Techdirt’s Daily Email
Save me a cookie
  • Note: A CRLF will be replaced by a break tag (<br>), all other allowable HTML will remain intact
  • Allowed HTML Tags: <b> <i> <a> <em> <br> <strong> <blockquote> <hr> <tt>
Follow Techdirt
A word from our sponsors...
Essential Reading
Techdirt Reading List
Techdirt Insider Chat
A word from our sponsors...
Recent Stories
A word from our sponsors...

Close

Email This