good article on the subject.
3:20 PM Eastern Daylight Time Jul 17, 2012
--Merchants would likely be able to add a surcharge in early 2013 if settlement is approved --Surcharges would have to be disclosed up front --Merchants would have to apply surcharges to all card brands (Updated with comments from MasterCard executive in paragraph 14, comments from Kroger spokesman in paragraphs 20-21 and new details throughout.) By Andrew R. Johnson and Karen Talley Large retailers are absorbing the ramifications of the settlement in which Visa Inc. (V) and MasterCard Inc. (MA) have agreed to allow retailers to charge more when customers pay with plastic. The $6.6 billion settlement stems from long-running litigation taking aim at the fees on each card swipe as well as rules Visa and MasterCard require merchants to abide by to accept their cards. Merchants have long pushed for the right to surcharge, or tack on a fee to customers who pay with a credit card. They say the practice would help them defray the cost of accepting credit cards and exert pressure on Visa and MasterCard to lower interchange, or "swipe fees," that merchants pay each time a customer swipes a card. "Interchange fees represent one of Target's largest expenses each year and we have long advocated for increased transparency and fairness," said Target Corp. (TGT) spokeswoman Jenna Reck. "As we evaluate the details of the proposed settlement and its impact on Target, we will continue to work toward a solution that represents true reform for the industry." The ability to surcharge would add to existing tools merchants have to steer customers to lower-cost forms of payment. Visa and MasterCard have long allowed merchants to offer customers a discount for paying with cash, a practice most common at gas stations but seldom used by other retailers. An antitrust settlement last year between the two card networks and the U.S. Justice Department also resulted in Visa and MasterCard allowing discounts to customers who pay with different kinds of cards. For example, a merchant can offer a lower price to a customer who pays with a plain Visa card instead of a Visa rewards card, which typically costs more for retailers to accept. With surcharging, a retailer would add an extra charge to a customer's receipt, typically as a percentage of the total bill. In Australia, where merchants have been allowed to surcharge since 2003, the average surcharge on purchases made with Visa and MasterCard cards is 1.7%, according to East & Partners, a banking research firm. But the Reserve Bank of Australia recently said it would allow card networks to set limits on how much merchants can surcharge, citing concerns that some retailers were using the practice to pad their bottom lines. There are several requirements for merchants who ultimately decide to surcharge as a result of the settlement. Merchants must notify the card networks of their plans to surcharge at least 30 days in advance. They also must post notices at their store entrances and at their cash registers, and the dollar amount of the surcharge must appear on the customer's receipt. The charges generally can't exceed the costs merchants pay to accept cards, and they must be applied to all card brands that they accept. American Express and Discover Financial Services (DFS), which aren't part of the litigation, generally allow surcharging as long as it is done to competing brands. Ten states, including New York and California, have laws against surcharging, so merchants in those locations still won't be able to engage in the practice after the settlement is approved. MasterCard wanted to "make sure that consumers at the end of the day are protected from merchants that may choose to impose checkout fees, particularly where they do so in a way that isn't clear to consumers, surprises them or is excessive," Noah Hanft, general counsel for the Purchase, N.Y.-based company, said in an interview. About 43% of consumers surveyed by Morgan Stanley said they would be "very likely" to switch from using a credit card to another payment method if a retailer added a surcharge. Of those consumers, 38% said they would use a debit card instead, while 31% said they would use cash. The payment networks have opposed surcharging out of fear that cardholders would be angered and stop using their cards, resulting in lower transaction volume and brand damage for the card companies. But retailers have argued the practice would help them recoup the money they pay to accept cards, while exerting pressure on Visa and MasterCard to lower their interchange fees. Interchange rates are set by Visa and MasterCard but are paid to the banks that issue their cards, such as Bank of America Corp. (BAC) and J.P. Morgan Chase & Co. (JPM). Those banks and numerous others are defendants in the litigation and part of the settlement. "We think this is a good settlement that gives any merchant new opportunities to help their customers," said Keith Dailey, spokesman for Kroger Co. (KR). Kroger, which was among the merchants that sued Visa and MasterCard, hasn't said whether it will impose surcharges but it is considering adopting a tiered system where customers will pay lower prices for using a regular card instead of a premium card, Dailey said. "At this time we have made no decisions in regards to charging different prices in the future for different tender types," said Sears Holdings Corp. (SHLD) spokeswoman Kim Freely. "We've not yet seen the settlement, much less studied what it might mean," Macy's Inc. (M) spokesman Jim Sluzewski said. "So it's way too early to know anything." Under the proposed deal, surcharging would be allowed starting 60 days after the settlement receives preliminary approval, or likely in early 2013. Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com and Karen Talley at karen.talley@dowjones.com Subscribe to WSJ: online.wsj.com?mod=djnwires (END) Dow Jones Newswires July 17, 2012 15:20 ET (19:20 GMT) Copyright (c) 2012 Dow Jones & Company, Inc. |
