| Charge it to Experience |
28 April 2003
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Mastercard, Visa on Trial
The trial of credit card giants Mastercard and Visa in a Brooklyn courtroom may get settled before some important issues are settled. Several retailers including Wal-Mart are suing them for overcharging to process ceratin debit card transactions. However, it remains to be seen if they should be charging at all.
The Automatic Teller Machine has been in active use for well over two decades in the US, and it has revolutionized banking. The customer gets constant access to cash, and the bank gets rid of a huge amount of paperwork. The original appeal of the ATM from the bankers' side was the reductions it made possible in teller and backroom staffing.
For Visa and Mastercard, the innovation of linking checking accounts to cards that would allow electronic purchases has made the lives of millions easier. However, they have been charging a modest amount, media reports of 15 cents, for authorizations using PIN numbers and a more substantial $1.50 for those using just a signature. While they argue that fraud is greater with the latter and that they need protection, the retailers claim it gouges them.
However, there should be no charge at all for using the ATM card for purchases at all. The reason is simply the overall social good that comes from reductions in paperwork and cash transactions. Since these firms operate in a well-regulated market, an addtional prohibition against this kind of charge (as well as the ATM out-of-network fee) would make it easier to track terrorist money, reduce tax evasion, and even cut violent crime as fewer and fewer people use cash.
The firms' advocates will argue that provision of such a service without a fee would be bad business. However, once the hardware is set up, the cost to the firms to provide the service is virtually nil. No one objects to a fee to maintain and repair hardware, but to collect a $1 fee for a $5 transaction is robbery by any name.
Alternatively, an anti-trust investigation into Visa and Mastercard operations worldwide might prove interesting. One has a feeling that settlements are in the air.