New Regulation on Online Merchant Credit Card Processing

July 16, 2013 | Author: | Posted in Finance

Ecommerce credit card processing merchants know that Visa and MasterCard are the two titans of the credit card industry. In fact, they have such control of the market that many have accused them of engaging in a duopoly, crushing any other competition that may stand in their way.

Duopolies, much like a monopoly, are not in favor of the consumer. These two giants can work together to drive up prices, knowing that merchants will pay for their services no matter what because of how necessary they are to business. Opting out for credit card use is very bad for business whether you operate online or in a physical location. Most customers these days expect to use their credit card. Many will simply follow your competition if it isn’t something you choose to offer.

Some businesses have sought out online merchant credit card processing for more freedom. Some online merchants have chosen to require a minimum balance for credit card purchases to make up for expensive swiping fees. Swiping fees are what credit card companies require merchants to pay every time a customer swipes their card. These fees can be a burden especially if the majority of business transactions are small sales. For a long time, credit card companies have made this practice of requiring a minimum balance against contract, offering penalties for engaging in such actions.

However, since the Durbin Amendment to the Dodd-Franklin Act, small businesses are now explicitly protected under law to require a minimum balance. This amendment was created in hopes of convincing credit card companies more fair and the playing field more level for their competition, but critics of the amendment say it really hasn’t accomplished what it has intended to.

Banks accuse the amendment of hurting their own business, as swiping fees are normally used to provide free or low-cost services like checking accounts and rewards program. Now with the amendment in full force, we are seeing less and less rewards programs for credit cards because it simply isn’t profitable any longer. Many people feel like government regulation isn’t the answer to lowering consumer prices. Big box retailers like Walmart haven’t lowered their prices as expected, and without their bank rewards and free checking, consumers are becoming more and more dissatisfied with the amendment’s outcome.

Banks once earned $3 billion a year off of these swiping fees, taking of 1.3% of every dollar each year. The new regulation has been reported to cost the industry $6 billion. Policy makers stand by the amendment, saying that more time is needed to witness a positive outcome from its effects.
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Guest post is provided by Total Merchant Services, offering free credit card processing equipment to those who sign with them. Visit their website for more details.

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