Retailers say the card industry is ignoring their mounting anger about the fees they pay to accept bank card payments.

Recent pricing increases by Visa U.S.A. and MasterCard International have made merchants feel like "victims of the banks and the associations," Christopher Steele, vice president of accounting operations at Best Buy Co., said this week.

"I don't believe we're being treated fairly," the executive of the electronics discounter said at Faulkner & Gray's annual credit card conference in Orlando. "Visa is just taking money out of our pockets to gain market share."

There are, to be sure, signs that the stewards of the big card brands hear the complaints.

Visa U.S.A. president Carl Pascarella conceded in a recent American Banker interview that "we could do more" to ease merchants' pain. As of this month he has a new executive vice president-Bond Isaacson, formerly of International Business Machines Corp.-overseeing both member-bank and merchant relations, in hopes of striking a better balance between the constituencies.

Speaking Monday in Orlando, Visa International chief executive officer Malcolm Williamson said merchants' displeasure with the current system is something "we ought to be prepared to sit down and think very hard about."

Mr. Williamson spoke after David W. Nelms, president and chief operating officer of Discover Financial Services, announced a new initiative to gain merchant acceptance for the Discover card. Mr. Nelms said he had been spending "a lot of time thinking about and personally meeting with merchants." He contended that the bank-affiliated associations have "lost touch with merchants" and "lost sight of the fact that cost matters to merchants."

"There is a point at which higher prices will reduce demands, reduce profits (for merchants), and I think that point has been reached," Mr. Nelms said. The bank card associations "no longer view merchants as some of their primary customers-the balance of power has shifted to the issuers."

Morgan Stanley Dean Witter & Co.'s Discover unit is offering incentives for merchants to accept its cards and is even calling on them to shun other brands. But with what Mr. Nelms said is a 6% market share, Discover's pitch may fall on deaf ears.

Mr. Steele of Best Buy said large retailers would have to be crazy to drop other brands in favor of Discover.

"Forty to 45% of our business is on major credit cards, and Discover is a pretty small piece of it," he said. Customers want to use bank cards, he said, and Best Buy must listen to them.

Mr. Steele said Best Buy, which has 311 stores in 36 states, must pay 1.38% of a sale amount plus 5 cents on a Visa transaction, and 1.36% plus 10 cents on a MasterCard payment.

Equally galling, he said, are the 13 million frequent-flier miles he estimates his customers earned by charging Best Buy merchandise on cobranded airline cards last year.

"Somebody paid for those miles, and I think it was Best Buy," Mr. Steele mused. "Our interchange goes to fund those freebies."

He said it would placate retailers if card issuers and their associations would "work cooperatively" on ways "to grow your business in a way that grows our business."

"I just wish banks could wake up and start showing some respect for us," Mr. Steele said.

Retailer outrage extends to both credit and debit cards.

Higher interchange rates, the interbank fees that dictate what merchants pay to process card transactions, take bigger bites out of profit margins. This tends to discourage some merchants, especially those of mom-and-pop size, from taking cards at a time when the industry is working hard to extend acceptance.

On the debit card side, many of the biggest retailers and their trade associations have joined forces in a lawsuit challenging MasterCard's and Visa's acceptance rules and rates. The so-called Wal-Mart suit, named for the largest plaintiff, is pending in U.S. District Court for the Eastern District of New York.

Paul R. Martaus, a merchant services expert and president of the consulting firm Martaus & Associates, said he has a new way to help make some merchants more savvy. Mr. Martaus, who recently relocated from Clearwater, Fla., to Mountain Home, Ark., has teamed with another payments industry consultant, Larry Schooler, to form a company called Positive Results Inc.

According to the business plan, its goal is to "teach merchants the skills necessary to maximize their payment services relationships with their bank and/or ISO (independent sales organization) partners."

Mr. Martaus said the start-up is developing a series of educational seminars to help merchants better manage card-acceptance matters.

There are no clear indications that the retailers' dissatisfaction has harmed the bank card industry.

Armen Khachadourian, senior vice president of new and emerging markets at Visa U.S.A., said the association continues to make inroads in the six new markets it has targeted for card acceptance: government and education; business-to-business suppliers; quick-service restaurants; recurring payments; the health care industry; and warehouse club stores.

Visa anticipates 32% growth in sales volume in these markets this year.

Sharif M. Bayyari, president and chief executive officer of BA Merchant Services, said his company continues to enjoy record profits and sales. The BankAmerica Corp. subsidiary saw 23% compound annual growth in sales volume processed between 1993 and 1998, and 19% revenue growth between 1996 and 1998 in domestic operations. (The parent company has put BA Merchant Services' Asian operations up for sale.)

Last year's merger of BankAmerica and NationsBank Corp. will be a boon to BA Merchant Services, Mr. Bayyari said, because it created a network of 4,500 branches that can sign up merchants. On the West Coast alone, he said, each branch signs up an average of one to 1.5 merchants a month, and 80% of new merchants are cross-sold other products, such as deposit accounts.

Major banks that had exited the merchant-acquiring business are showing renewed interest in it, but the BankAmerica unit never wavered. "We think merchant services is an integral part of the banking relationship," Mr. Bayyari said.

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