Here Comes the Interchange Counter-Offensive

. True that. It shouldn’t be, but it also can’t be, because the credit card rate is so close to the signature debit card rate, and the signature debit card rate reflects me actually moving my money from point A to point B, not me getting a short term revolver loan. Felix digs up the graphs that try to trick you on this, but the updated graphs he finds are correct.

- e21 recently put up a defense of approaching the interchange market, noting the market-based logic that “Allowing vendors to price discriminate further increases the possibility of transparent pricing. As Amy Finkelstein has shown in her analysis of EZ-Pass pricing; when hidden charges are built into prices, they become less salient, encouraging EZ-Pass operators to charge higher prices. Similarly, as long as we are unaware of the pricing difference between cash and credit or debit purchases, merchants are free to charge higher and higher prices.”

Price discrimination usually implies a similar product: a student with id pays $6 to see the same movie in the same theater as the adult that pays $10. People who pay with rewards cards do in fact get benefits, and thus cash, that is paid for by the business that someone paying with pin debit does not.

- This is not a rounding number debate. Again from Felix:

At Target, for example, interchange fees represent the second-largest store-level expense, behind payroll. The costs are similarly eye-popping at Home Depot, where officials say they top the price of health care insurance for employees. “The amount of money we’re spending on interchange would put 10 associates in each of our stores,” Dwaine Kimmet, vice president of financial services for Home Depot, said at a recent conference on credit card fees.

- My new favorite comment. I like telling the story of Jinger Duryea, president of CN Brown, which owns Big Apple convenience stores across Maine, who talks about how if you charge a newspaper she loses money and she has no legal recourse against this loss except by going off the credit card grid. Why shouldn’t she be able to impose a minimum?

Here is Zywicki in the Washington Times with his answer:

Merchants argue that they lose money on consumers who don’t purchase enough to make a card sale profitable to the merchant. Perhaps, but merchants engage in all kinds of activities that guarantee that they don’t make money on every customer who walks in the door – from the customer who uses a sales clerk’s services without eventually buying anything, to free returns, to operating during hours when few customers shop. Yet even though merchants lose money on those who browse but don’t buy, they make a business decision that those occasional losses on some customers are justified by the overall business value of providing helpful service and free returns. The decision whether to accept payment cards is no different.

Read that again. First of all merchants don’t argue this, they give credible examples with numbers. Second, the decision isn’t to accept payment cards but to discount debit cards. And third, the idea that the credit card duopoly has both better knowledge and better incentives than the business owner into how to run their business is striking. I think the knowledge and incentives of the business owner himself are far better aligned to decide whether or not to impose a minimum.