Merchants Get Upper Hand In InterchangeWar

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LAS VEGAS - (04/24/06) – The growing number of merchantlawsuits against Visa USA and MasterCard International appear tohave given the merchants the advantage in the battle overinterchange fee-setting. The number of suits-at least 50 at lastcount–have strengthened the merchant’s position andappears to have persuaded the two bank-controlled payment systemsto postpone interchange rate hikes, according to expertsparticipating in last week’s 2006 Electronic TransactionsAssociation Meeting & Expo here. The intensifying legal battlehas also forced both payments systems to restructure with an aimtowards more accountability and transparency, said Tom Wimsett,president and CEO of Retriever Payment Systems. MasterCard, whichis ostensibly owned by 1,400 financial institutions but is 30%owned by JP Morgan Chase, Citibank, Bank of America and HSBC, is inthe process of changing to a publicly traded corporation. And Visaannounced it will name independent directors to its board thatalready includes representatives from JP Morgan Chase, Wachovia, USBancorp, Wells Fargo and National City Corp. Wimsett suggestedgreater transparency will benefit the merchants. More informationwill be made available to merchants and ISOs, he said. The manylawsuits are exceptionally expensive for the associations, and thesheer number of them have strengthened the merchants' position,according to Alex Pollack, former president of the FHLB Chicago andnow a resident fellow at the American Enterprise Institute. Visaand MasterCard control about 85% of the $30 billion market forcredit and debit card interchange fees. In a typical transactionabout 80% of the transaction fee goes to the card issuer in theform of interchange and about 16% goes to merchant, said Wimsett.The remainder goes to Visa or MasterCard, whichever network handlesthe transaction, and other parties to the transaction.

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