Download Time To Let Merchants Surcharge

The raft of
interchange
suits brought
by merchants against Visa USA, MasterCard Worldwide, and several major banks are consolidating into
one super antitrust case in federal court in Brooklyn. As they do, two contentions made by the merchants
and their attorneys stand out: 1) that the bank card networks and their banks conspire to fix interchange and
impose it on retail companies that, because of the market power enjoyed by the networks, have no choice
but to pay it; and 2) that interchange represents a hidden “tax” on consumers, all of whom—not just card
users—unknowingly pay more for goods and services because of the acceptance fees.
But instead of turning to the mills of justice to overhaul the way the networks price transactions, as the
merchants hope the court will do, suppose the plaintiffs were to ask the court to set aside the networks’ ban
on retail surcharges, allowing them to impose on card transactions the extra cost they incur by accepting
them? In effect, just those consumers who want to use a card—not all customers—would bear the cost of
interchange as a passalong. Non-card users would not subsidize miles and other rewards issuers shower on
premium card users. And, whatever the relative market power of the card networks, the cost of interchange
would be lifted off the shoulders of merchants and become a matter between two willing parties to a
transaction. With posted notices in stores and on Web sites, customers would know they’ll pay a premium to
use a card, and can make up their minds whether it’s worthwhile.
Now, it’s true that merchants can—and sometimes do—offer discounts for cash, and it becomes an
exercise in semantics whether this amounts to the same thing as surcharging. But the networks prohibit
surcharges specifically for a reason. They fear the psychological effect on consumers, who might be
dissuaded from using cards. This in itself distinguishes surcharges from discounts. It’s also true that when
the central bank in Australia allowed merchants there to impose surcharges, few did.
But none of this takes away from the central point. Striking down rules against surcharging creates the
opportunity for willing, informed exchanges between card users and merchants. If the banks indeed wield
excessive market power through their associations, surely no example of such power stands out more starkly
than the prohibition on surcharges. And merchants, with all their efforts at so-called steering at the point of
sale, haven’t been immune to self-interested restrictiveness themselves. Voluntary exchanges are a
preferable alternative.
Time To Let Merchants Surcharge
John Stewart, Editor-in-Chief
[email protected]