Sleight of Hand

In an article yesterday in USA Today titled, “Credit card fees eat up gas station profits,” it was noted that , “As gas prices have jumped, station owners' profit margins have shrunk because they now must pay higher fees to credit card companies to process payments.” (For the full article and on-line comments, see http://www.usatoday.com/money/smallbusiness/2008-07-07-gas-prices-credit-card-fees_N.htm )

What most citizens (I hate that somewhere in the last decade someone tagged me a consumer) do not understand is that the article was one more shot in an on-going war – the war merchant associations are waging against card issuers and transaction processors. This article allowed the merchant associations to once again stake their claim of unfair price gouging.

Whew, talk about sleight of hand.

In the interest of full-disclosure, let me here declare that I work for one of those card transaction issuers and processors, and while I do not speak for them, I am biased. But lest you get the idea that my bias is purely because I work for a card transaction company, think again.

You see, several years ago I was a victim of the huge TJ MAXX (TJX) data release – the nice way to say that TJX was so irresponsible with my personal credit card data that it was stolen and my Credit Union replaced my debit card. And they have yet to send me even a note saying, “Sorry Lon,” let alone anything for my inconvenience. Oh, and lest you think the only inconvenience of a data release is when they steal your money, you haven’t had the pleasure yet, have you?

For your information, I stopped going there. I voted with my re-issued debit card.

But that was also the beginning of my self-education on the issue of merchant data security, interchange fees – or the rate the processors charge the merchant to turn your transaction into your payment, fraud, and charge-backs. In case you want to know, there is plenty out there on it and if you want to look at the complete picture, you shouldn’t just look at interchange fees in isolation.

I’m not a conspiracy nut – but I am a seasoned marketing guy with more than two decades of experience (and most of it is not in financial services) and I know that you position your product, service, campaign or brand by deciding which part of the story you tell. Merchants tell you, and more importantly, tell your elected representatives what they want you and your legislators to know, and withhold the rest of the story because it does not play that well.

Permit me to add a few plot twists that merchant associations leave out.

Merchant data security or the lack thereof is a huge issue they’d like to gloss over. They wish you would not pay any attention to how much data they have on their servers, how much they actually use, how long they keep it, why they keep it after they have been paid, or how well they secure it.

Merchants don’t want you to know the number one fraud issue they face never was bad checks, credit card charge-backs or even shoplifting. It was always employee theft. And they continue to face the issue, but employees are now getting into your data too.

Merchants don’t want you to know that their lapses cost the card transaction processors real money. Oh, by the way, this might be one of the reasons that the interchange fee is a part of the equation.

Merchants don’t want you to use a personal check. You may not see it the same way, but debit and credit cards took the place of the personal check in the mind of merchants years ago. Personal checks used to cost merchants time and money.

The fact that a clerk no longer has to look your card number up on a “hot sheet” booklet made of newsprint and issued weekly, means they no longer know what kind of infrastructure and employment is necessary to provide that “real time” authorization – the immediate verification of the sale.

Merchants do not want to talk about the fact that they added debit or credit payment options because you demanded them. We citizens value payment choice – that is the choice to use debit, prepaid, credit, check or cash for the transaction at hand. We do this for our convenience. We expect if there is any inconvenience in the transaction the merchant will be the inconvenienced party since they are serving us.

We expect them to like our money in whatever form we bring it to them. We don’t like limits on our options, and when they limit us and one of their competitors will not, we are more likely to take our business elsewhere.

Merchants don’t want you to understand that there are costs to processing your payment. They want you to think it is magic. They want you to think it is mysteriously and immediately done when you swipe your card.

They don’t want you to think about the telephone services and connections, the rooms full of servers, the people who have to support such processes and servers, the fraud that must be absorbed, the people who must answer your call, the fact that few of their 19-year old, minimum wage cashiers will check to see that you are who your card says you are, the claims against them when they misapply a charge and then refuse to reverse it, and the damage their “data releases” cost the card issuer and processor.

Merchants want you to think all of that is free.

Merchants think they can get the legislature to regulate the credit card companies because you are outraged and demand it. They know you want payment choice, and they want to give it to you, but they don’t want the costs. They want the magic. They want immediate. They want armies of people to support it and take their personal check and merchant credit headaches away, but not their people, and apparently, not their costs.

So merchants and merchant associations tell you this nice little bedtime nightmare and hope you will write your congressman.

I’ve got a better idea.

Lets all decide together that life-sustaining goods like groceries and gasoline shouldn’t be sold for a profit. Let’s demand that our congressmen regulate merchants of these items. Let’s get a three-judge panel determine the price of every life-sustaining commodity.

I’m sure lame-duck Representative Chris Cannon can get behind this like he did the Interchange Legislation that he recently co-sponsored and which actually might have been the reason for his primary election loss (ah, Chris, you forgot all those card issuers and transaction processors that are a part of your constituency … and they even wrote to you!)

There is only one real problem with my great idea. Merchants who cannot make a profit cannot stay in business, and then where are we? Why, right in 1970s USSR. Three-judge panels to determine prices fit there, not here.

If three-judge panels are not right for food and gas, why are they right for interchange fees?

Now if I were a conspiracy theorist, then there would be a preplanned and very personally profitable ending to this call for regulation for the merchant conspirators. But there isn’t.

You think the credit crunch is bad now? Without payment options it is worse. More like 1820 mercantile - cash or merchant credit only. No ATM.

Think water, no paddle.