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With banks and merchants both wrestling with their biggest losses in decades, and with the prospect of card-acceptance legislation riding the coattails of consumer credit card legislation, the rivals also are wrestling with renewed vigor over the extra change tacked onto card transactions. "Our interchange fees are our third-largest cost, behind rent and salary, (but) ahead of health care," Dwayne Kimmet, vice president of financial services at The Home Depot, said yesterday at the 2009 Payments Conference at the Federal Reserve Bank of Chicago. "Our interchange costs are increasing through a few areas–new, higher-cost ... rewards, increasing costs of debit, increasing charge-back rates and the introduction of new association fees." Presentations and panel discussions at the first day of this year's conference, organized around the theme of payments pricing, drew debates between seated panelists and audience members representing the merchant and card-issuing sides of the payments chain. "I believe in free markets, and I believe in free pricing as the main component of free markets," said Josh Peirez, group executive of innovation platforms at MasterCard Worldwide. "If you think prices are too high, that provides opportunities for the Tempos of the world and the PayPals of the world to come in and offer a better value. Merchants should innovate rather than regulate." Tempo Payments Inc. and eBay Inc.'s PayPal offer alternative payment options to traditional bankcards, often at a lower cost to merchants. Peirez also attacked the idea that merchants suffer from interchange costs but will share savings with consumers if interchange rates are reduced. "Merchants saying I can't pass along any cost but I'll pass along savings, that always fascinates me," he said. Michael Cook, vice president and assistant treasurer of Wal-Mart Stores Inc., called interchange a "hidden tax" on consumers. "We pay a billion dollars in credit card and debit card interchange fees," Cook said. "That's a billion dollars that won't be given back to the consumer." Wal-Mart long has steered its shoppers away from signature-debit and toward PIN-debit transactions, which cost less to accept. As a percentage of sales, PIN-debit transactions have increased 15.7% at Wal-Mart since 2003, Cook said. During the same period, signature-debit transactions increased by only 3.1%, credit card transactions dropped 2.5%, check transactions dropped 16.4%, and cash and other payments each dipped by 2.2%, he said. Even so, the cost of accepting credit and signature-debit cards has increased, and those costs have kept Wal-Mart from embracing emerging-payment options the card networks offer. "We have not implemented contactless technology," Cook said. "If we ended up moving our PIN-debit transactions to contactless, for Wal-Mart it would be about $20 million per year in additional expense."
