Saturday, October 15, 2011

Credit Card Processing Lobby

Credit Card Processing Lobby In Washington

Am Ex Credit Card ProcessingIn one of the most interesting news stories about credit card processing this year, what I had long suspected turns out to be true.  It has to do with the credit card processing and their strong lobby.  It is important to know what goes on in Washington and how it affects small business.
This story in particular focuses on American Express and how they spent over $600,000 in the second quarter of 2011 lobbying Washington in an effort to ease regulations regarding credit card processing and, more specifically, debit card fees.  As many of us already know, new legislation was passed which regulates the amount of fees a merchant can be charged for accepting debit cards on a per transaction basis.
This type of legislation has been a long time coming and is an attempt to keep merchants who accept credit cards from being victimized by enormous fees for offering a service that customers have come to expect, and expect it at no additional cost to them.  Merchants are forced to declare minimums when they accept credit cards for small purchases because their profits may actually go straight to their merchant account providers and theoretically they could lose money on every purchase.
In a lot of cases maximum amounts are also be because the percentage fee from a transaction may represent far more than any credit card processing company deserves just because a transaction is so large. With regard to debit charges, the new law states that a merchant can only be charged 21 cents plus 5 basis points times the amount of the transaction.  A great deal for merchants and terrific news for consumers, but the banking industry is upset about this.
Issuing banks will need to make up this lost revenue somewhere and of course, customers will have to pick up the bill.  Free checking will completely disappear, if it hasn’t already, and debit rewards loyalty programs have disappeared almost faster than they hit the seen a few years ago.  The winners and losers will really be determined after consumers change their spending behavior at the credit card terminals but the banks want to make sure that they are somehow the winners in all of this.

Should There Be A Credit Card Processing Lobby?

The interesting thing about the American Express lobbying spend during this time was that American Express does not even issue debit cards and are not directly affecting by the new rules.  However, they clearly see the writing on the wall and probably fear the consequences of how these new laws can now regulate Interchange which is an amount that banks can charge each other for credit card processing.  American Express also lobbied other legislation regarding customer tracking and tighter privacy protections and their position, as with most banks, does not bode well for the consumer.
Change in the credit card processing industry, and banking in general, is costly.  New technologies which constantly need to be upgraded to protect against vulnerabilities require massive capital and are never ending so it is understandable that these industries resist change.  But is it for the right reasons?  These moves are clearly an attempt to protect their bottom lines and show little concern for transactional safety and the price merchants must pay to accept credit cards to compete at a customer service level.  The Lobby was originally developed as an organized way for the people to talk to Government but it has evolved as a way for big businesses to slow down Government by filling the pockets of voting legislators.
Credit Card Processing should only get better, more efficient and less costly for both merchants and consumers but if issuing banks have their way, it will be anything but.