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This story appears in the August 2009 issue of Cards&Payments.
Merchant coalitions long have asserted that credit and debit card interchange levied in the United States is an unfair, hidden fee on consumers because merchants must pass on those extra costs to shoppers. The argument thus far has inspired a few bills in the House and Senate, but so far no laws.
But merchants now have a new batch of legislators elected by masses of consumers battered and embittered by a worldwide economic crisis started by banks issuing bad mortgages.
Merchant lobbyists are seizing the opportunity with a variety of new print and video ads vying for the sympathies of legislators and, secondarily, consumers. The ads range from polished print layouts and expensive-looking online videos to grass roots-style, low-production-value YouTube videos.
Representatives of card issuers are fighting back with their own ad campaigns that also mimic the low-budget do-it-yourself YouTube look.
The effectiveness of this new round of multimedia outreach is unclear. What is clear is that the battle of YouTube videos, print ads and consumer-petition campaigns is just getting started.
The latest version of card-acceptance legislation, an interchange bill reintroduced in June by House Judiciary Committee Chairman John Conyers, D-Mich., would remove antitrust hurdles to let merchants enter into collective-bargaining agreements with banks when setting interchange rates. Dick Durbin, D-Ill., introduced a companion bill in the Senate shortly thereafter.
The bills follow closely on the heels of updates by the Merchants Payments Coalition and Electronic Payments Coalition to their collections of online media imploring readers to contact their lawmakers to fight or defend current interchange practices.
As the Bush administration wound down and the economic crisis ratcheted up early this year, the Merchants Payments Coalition's Web site, www.unfaircardfees.com, still opened with photos of consumers looking shocked or distraught as they viewed credit card statements or Web sites, notes Ed Kountz, senior analyst with Forrester Research Inc.
The images were like TV "infomercials, where even simple tasks are, in black and white, made so complex that a new solution is necessary," Kountz says.
The ads likely failed to inspire much ire from consumers, says Ronald Mann, a professor of law and co-chair of the Charles E. Gerber Transactional Studies Program at Columbia Law School.
"I don't think those made much of an impact because I don't think consumers really care about interchange," Mann says.
The Merchants Payments Coalition recently redesigned its site and added a large collection of new videos, cartoon strips and print ads among some of the classics. Videos range from a crudely designed cartoon credit card with a Darth Vader voice threatening to hit the viewer with a variety of fees to a commercial showing a misbehaving boy who fulfilled his dream of becoming a pirate by working for a credit card company as an adult.
On the site's opening page is a slick new video called "Domino" that links, through high-production-value illustrations, a series of silver dominos linking the subprime mortgage crisis to consumer struggles that, combined with interchange, lead to stores closing and consumers suffering more economic hardship.
Though not swayed by the coalition's attempt to connect mortgages and interchange, Mann believes the domino video will be more likely than the previous ads to convince consumers and lawmakers to see a connection between subprime mortgages and interchange. "It's a good ad that suggests a connection that might seem believable," Mann says. "It plays on emotions about the nature of the causes of the subprime crisis."
Kountz agrees. "The ad tries to leverage the momentum of the subprime mess as a way to move forward a particular agenda, and it does so smoothly," he says. "The industry does have to accept some responsibility (for subprime lending) but this is a positioning that I feel is overly simplistic, at best."
It is unclear whether consumers are actually the intended audience of the videos or if they are really targeted at lawmakers.
Members of the Merchants Payments Coalition responsible for its ad campaigns declined to discuss their strategies with Cards&Payments. But Craig Shearman, a spokesperson for the National Retail Federation, a leading coalition member, confirms that consumers are not necessarily the intended audience of the campaign.
"The ads are really targeted more at Congress than consumers," Shearman stated in an e-mail message.
Meanwhile the Electronic Payments Coalition, whose members include the major card brands and issuers of their products, posts counter-arguments about interchange on its Web site, www.electronicpaymentscoalition.org, in a style and layout that since May has looked similar to the merchant site.
In a YouTube video posted on the Electronic Payment Coalition's Web site, a young narrator dressed in a business-casual black shirt uses illustrations on a white board to explain to viewers how card transactions work, using a $10 American flag purchase from a small store as an example.
The merchant's bank collects a 20-cent discount fee on the transaction from the merchant, and the card issuer takes 16 cents of that as interchange, the narrator explains. The card-issuing bank takes on all the risk of any fraud or other problems that might occur with the transaction, he adds.
"But these big-box merchants aren't happy with the system, and they're currently lobbying Congress to pay less," the narrator says. "So what would happen if they got their way? Your bank or credit union could start charging you more to make up for money lost. And if that happens, do you really think these big-box stores would start charging you less? I don't think so."
Another video shows only the hands of the narrator as he draws simple diagrams of the card-acceptance system and benefits of interchange with markers on several sheets of copier paper.
Like Shearman, Trish Wexler, spokesperson for the Electronic Payments Coalition, says her organization's Web outreach is directed primarily at lawmakers and journalists.
"There's so much misinformation being pushed out by the merchants that we have a need to make sure that the record is set straight," Wexler says. "It's hard to do that in a two-dimensional format, so we created this video so that every time a new reporter or policy maker or [congressional] staffer comes to the issue, we have a really simple way to explain how the system works and how it benefits consumers."
Some Electronic Payments Coalition lobbyists use laptops or iPhones to show the video to congressional staffers, Wexler says.
Though Wexler does not expect many consumers to wander onto the payments organization's Web site, its design and wording are meant to appeal to whatever consumers might see after having heard counterarguments from merchant groups against current interchange practices. "It's never helpful to consumers if they are seeing wrong information, too," Wexler says of merchant attempts to get their messages to consumers.
Like the merchant Web site, the Electronic Payments Coalition's site urges voters to contact lawmakers. "Merchants don't want to pay their fair share for accepting debit and credit. ... Click here to find out how they want you to foot the bill," says a link on the site. "Click Here to Tell Congress You Don't Want to Pay for Retailers' Costs!" says a link directly below it.
And one convenience-store chain, 7-Eleven Inc., began collecting customer signatures on petitions in each of its more than 6,000 U.S. stores calling for Congress to regulate interchange (
Reason To Worry
Despite the focus on lawmakers, card issuers and networks have reason to worry about what consumers think about cards in general, according to Kountz. "Clearly, when the chips are down, everybody who can pile on to influence a situation will do so," he says.
According to Visa Inc.'s card-acceptance rules, merchants that accept one type of Visa credit card have to accept all types of Visa credit cards: cards with no rewards, moderate rewards, premium rewards, consumer, small-business and corporate, for example. MasterCard Worldwide, Discover Financial Services and American Express Co. have similar rules. And while merchants can offer discounts for cash payments, card networks do not allow merchants to surcharge cardholders who use credit and debit cards.
Representatives of the Consumer Federation of America, an advocacy group for consumers on a variety of issues, including financial services, call interchange regressive taxation.
"All the low-income consumers who pay with cash or checks or plain vanilla credit cards are subsidizing your miles," Jean Ann Fox, the federation's director of financial services, said of rewards cards during a Chicago Federal Reserve Bank conference in May. She cited an estimate that merchants paid processors $48 billion in interchange in 2008. "This is a transfer of wealth from those who don't benefit from rewards cards to those who do."
Despite the efforts of both sides of the interchange issue, Mann does not believe lawmakers will be moved to act on even the most influential new media arguments, at least not this year. "This is not one of the biggest problems in the U.S. right now," he says of the debate. "No one's going to get re-elected on this issue."
But such public-outreach campaigns, as well as merchant success in getting card interchange curbed outside the U.S., could plant seeds in the minds of consumers and legislators that could grow in influence later, he adds.
"You really don't know where the industry is going to go in the next few years, or what public attitudes are going to be," Mann says. CP
