Magazine article American Banker

K.C. Fed Interchange Forum to Pit Networks vs. Merchants

Magazine article American Banker

K.C. Fed Interchange Forum to Pit Networks vs. Merchants

Article excerpt

The Federal Reserve Bank of Kansas City chose a provocative title for its first payments conference, which will kick off today in Santa Fe, N.M.: "Interchange fees in the credit and debit card industries: What role for public authorities?"

Merchant complaints about the ever-rising cost of accepting cards have grown louder in recent years, and several months ago retailer trade groups formed the Merchant Payments Coalition to advocate the regulation of interchange.

Mallory Duncan, the coalition's chairman, says those concerns have even prompted some merchants, which he would not name, to discuss buying or forming a consortium to buy Discover Financial Services Inc. (Last month Morgan Stanley said it would spin off Discover.)

No one at the Kansas City Fed is suggesting that regulators will get involved in controlling interchange any time soon. The purpose of the conference is "to encourage a dialogue," said Stuart E. Weiner, a vice president and the director of payments system research at the Kansas City Fed.

"It is clear this is a fruitful area for research," he said. "There is some disagreement between certain groups in how to look at interchange. From our standpoint, we are information-gathering."

Still, the 100 or so expected attendees -- including representatives of merchants, networks, issuers, consumer groups, and some academics -- can look forward to a spirited debate.

Sharon Gamsin, a spokeswoman for MasterCard International, wrote in an e-mail that, considering the track record of some speakers, "we'll be surprised if we don't hear a lot of anti-interchange rhetoric, which we plan to address."

Avivah Litan, a vice president and research director at Gartner Inc. in Stamford, Conn., said she sensed a lot of "nervousness" among participants about the conference.

"Everyone is approaching it very cautiously, because of all the litigation," she said. "There is some fear that anything that is said could be used against them in court.

"The best we can hope for is a fuller understanding of each party and a willingness to work together, because they are facing each other on the podium instead of in open court," Ms. Litan said.

Mr. Duncan, who is also a senior vice president and the general counsel at the National Retail Federation, called regulation "one very good idea," and he noted that other countries have forced reductions in interchange. Australia, which has limited interchange for Visa U.S.A. and MasterCard, could offer a model for the United States, he said.

"Credit card interchange in Australia is less than half of what U.S. consumers pay," he said. "From our perspective, the banks have almost treated interchange like the dirty little secret it is. It is time the public realized just how badly they are being gouged."

The conference will be a good forum, because the Federal Reserve Board "has a lot of persuasive authority with the public and Congress," he said. …

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