The battle between retailers, issuers and the major card networks rages on, but behind the scenes, small electronic funds transfer networks suddenly have become more relevant in driving down payment-acceptance costs.
When, under Dodd-Frank's Durbin rule, the Federal Reserve Board banned issuers from signing exclusive branding deals with individual networks, it opened opportunities for the networks to compete with the likes of MasterCard Inc. and Visa Inc. Under Durbin, issuers now must negotiate with the other EFT networks to have at least a second PIN-based point-of-sale debit brand on their cards besides the ones run by the network whose brand appears on the card.
Durbin "certainly was a game-changer," says Dan Kramer, senior vice president of marketing and merchant operations at Shazam, a Johnston, Iowa-based network that primarily serves small community banks.
"Now everyone wants to get transactions routed to them, and retailers can negotiate where they are sent," Kramer says. In pricing, "it's a race to zero," he says.
And for merchants that race has created a more positive relationship with issuers, he says.
"Before Durbin, retailers, issuers and processors kept [one another] at arm's length," Kramer says. "Durbin forced them to sit at the table and discuss what's best for each party."
But the relationship still is not altogether rosy.
Indeed, the trends that started in 1996 with Wal-Mart and other merchants' successful challenge to the networks' "honor-all-cards" policies in a large antitrust suit, continue to escalate, says one former EFT network executive who requested anonymity because of his continued ties with various networks.
"This stuff has only gotten worse," the executive says.
The latest crescendo came when Visa, MasterCard and the largest banks proposed
Several prominent retailers have balked at the settlement, which would let them add a surcharge for card payments but not set a price that varies based on what the network brings to the transaction, says the executive. The settlement also only temporarily reduces interchange rates.
In the executive's view, the only way the market truly can work is by letting retailers set the price of their surcharges, just as they would set the prices the items they sell.
"This settlement, in the terms and conditions I've seen, is absurd; I don't know why anyone would support it," he says. "If you could surcharge Visa with one fee and MasterCard with another and cause competition, that's game-changing. If all are the same fee, nothing is accomplished."
The large merchant banks have the opportunity to do things differently, he adds. "There is a hunger for folks to have solutions for things other than Visa and MasterCard," the executive says. "It is a very strange time in the payments industry for Visa and MasterCard. It's equally a very fascinating time for companies like PayPal and Square that have the opportunity to shift mindsets and volumes away from those brands."
Indeed, the market is at an inflection point, where merchants would like to gain direct access to consumers' accounts to cut payment-acceptance costs, preferably through the automated clearinghouse system, says Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group LLC.
And that includes mobile payments.
While PayPal already supports automated clearing house payments for mobile transactions at the point of sale, others do not, and that could be because ACH does not provide a good consumer experience, Ablowitz says.
That reluctance to use ACH gives Visa some power, he says.
"Visa is not out of bullets, and you can expect based on past history and what is going on in the market currently, there absolutely is a motivation and willingness to make aggressive moves in the marketplace." Ablowitz says. "If you … haven't taken an aggressive reaction in the wake of things like what happened with
