Recently Wall Street Journal published a report saying Target, Amazon, Home Depot, and many other large retailers want the ability to reject certain types of cards – rewards cards.  I find this extremely interesting.  There’s one core rule of Visa and MasterCard which has not been overturned.  If merchants accept Visa, they must accept all Visa cards.  The same is true of MasterCard.  The 6.2 billion dollar settlement which has transpired shows this is a big deal right now!  The large retailers want to be able to reject certain cards.

I’m amazed that these large retailers are willing to inconvenience their customers to the point of saying, “We are going to reject your card.”  The consumer would get to the counter and proceed to use a rewards card only to hear, “Oh, we don’t accept that card type.”  That’s a really negative consumer experience in my opinion.  I felt the same way about Kroger when I published an episode several weeks ago concerning their refusal to accept Visa.  That’s really annoying to a consumer shopping there.  In the Kroger case there were only a few of their stores in California involved.  And probably, as I mentioned in my content, this was more of a negotiating tactic by Kroger to get their interchange rates lowered.  But this is an interesting glimpse of the direction the larger retailers are going.

I don’t think that direction is going to last.  That’s not what’s really going to happen.  To me, consumers would find less inconvenience in a service fee added onto the purchase than going to these stores and being unable to use a card at all.  However, I don’t see the big named retailers going with 4% service fees and things of that nature.

In case you don’t realize, there is a big lawsuit against Visa and MasterCard.  However, in an effort to bring about a ruling, the case was split into two lawsuits.  Legal parties decided to settle the financial damages from Visa and MasterCard, and then make a separate case to settle the lawsuit that the retailers made.  The reason the card brands need to pay the settlement is that they were colluding together anti-competitive practices such as fixing interchange fees.   

I’d like to give my take on the “ideal system” for payment processing as we move forward with all these new things coming up.  Please give me your opinion by making some comments below the video.  Let me know what you think.  Here is what I think should happen.  

I believe the answer to solve all these problems – cash discounting, surcharging, big retailers basically not accepting cards, and all the crazy things happening in our industry right now – is a system of transparency.  When the networks send the authorization code back to the terminal at the point of sale, at least the base interchange should be included.  The card type should be recognized, the authorization code stated, and the interchange rate stated as 1.7% and 15 cents (or whatever it is.)  Visa and MasterCard should send through the interchange rate on the card being used.  Then the merchant should be free to do whatever with that information.  Right?  This is a free market.  My opinion is that merchants should have the ability to pass that interchange through to the consumer.

Perhaps a point of sale system will be introduced which says, “We are only going to pass that cost through to the consumer.  The rest the merchant is going to pay.”  I think merchants should have to pay something for processing.  They are getting larger ticket sizes and a lot of value for it.  So, they should have to pay something.  I don’t think they should have to pay the interchange rate.  Rather, merchants should choose whether to accept the interchange rate or pass it to the consumer.

This system also makes a lot of sense for the consumers.  They would see the actual interchange cost.  It could even be the name on the receipt – “interchange cost.”  That’s what it is.  If they question, “Hey, what’s this?” merchants can answer, “The exact interchange cost, the amount I pay to the penny to accept your card.”  A transparent system like this would be one with which everybody in the industry could get on board.  The ones who wouldn’t get on board are those making a huge amount of money from cash discounting.  But over time, those margins are going to go down on cash discounting just like they go down on everything else anyway.  Therefore, if we started working on a system like that now, to me that’s the transparency we need.

What can you do with news stories such as the big retailers trying not to accept rewards cards?  I encourage reps working in the field to seize the opportunity of using these kinds of news stories as conversation starters.  I have alerts on my phone for news stories published about interchange fees, banks, and payment processing.  When working the field, I would print fifty copies of a good story like this and go to all the merchants who didn’t buy from me in the last month or two.  I’d say, “Hey, I just printed this story to drop off.  I thought it was so interesting.  Have you seen this news of some big retailers saying they don’t want to accept rewards cards anymore because they are so expensive?  What do you think about that?”  What a great conversation starter!  Then you can question what the merchant thinks about cash discounting.  You could say, “Instead of not accepting the card, which seems really inconvenient, wouldn’t it be better to just put the cost onto the consumer and do cash discounting?”  Be aware of what’s going on in the industry.  These news stories are conversation starters.

Give me your feedback.  I’m really curious what you think about a transparent system and what we could do with that data.  Your opinions about what to do with it might be different.  But what do you think about getting that data at the point of sale so that when merchants get the authorization code, they also get the interchange rate?  Do you think that is a good idea?  Would that add some transparency to the system – transparency that could be used in many different ways all the way to the consumer?

I hope you’ll give feedback about my general musings today.  Make some comments below the video, on Soundcloud, or shoot me an email – james@ccsalespro.com.

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