Credit Card Gist

Retailers seem to have won the debit card fee battle they have fought for years with credit card companies, reports the Wall Street Journal. The final version of the financial overhaul bill that is being hammered out by members of the House and Senate will include the debit card fee cut, which could save retailers billions a year.

Under the new rules, the Federal Reserve would have the power to regulate the interchange fees that Visa and MasterCard set for debit card transactions, although it is not yet clear how much these fees would be reduced.

Interchange fees vary by transaction and card type, typically in the range 1% – 2%, which is much higher than the fees charged for processing checks.

“Every dollar we pay the credit-card companies is a dollar we can’t pass on to consumers or use to hire employees or build more stores,” said Scott Mason, vice president of government affairs for home-improvement retailer Lowe’s Cos. “Literally you are talking about hundreds of millions of dollars.”

This is not the way the payment card industry sees it, of course. “We continue to have concerns that the ultimate outcome of this legislation would be the passing of merchant acceptance costs to consumers at a time when Americans can least afford it,” said Noah Hanft, general counsel at MasterCard.

(Via WSJ.com)

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Sen. Richard Durbin, D-Ill., has scheduled a hearing for Wednesday, June 16, on how much interchange fees cost consumers. Interchange, or swipe, fees are set by Visa and MasterCard and are collected by card issuers every time a payment transaction is processed. Sen. Durbin’s amendment to set limits on debit card fees is vigorously opposed by the credit card industry.

“Fees associated with these transactions cost the federal government over $116 million, making credit and debit cards Treasury’s most expensive collection mechanism,” the department’s Financial Management Service said in the report. The government could save $36 million – $39 million a year by reducing interchange fees, the report said. The federal government accepted more than 80 million credit and debit card payments totaling $8.6 billion in fiscal 2009, according to the report.

Card issuers collect more than $40 billion a year from interchange fees, which range between one percent and two percent per credit card transaction, according to the National Retail Federation.

The credit card industry, for its part, claims that it will be consumers who will be hurt the most, if the amendment remains in the final bill.

“The decrease in merchant acceptance fees which would result from your amendment would simply be borne by consumers – and at a time when consumers are struggling from the steep recession and trying to regain some degree of spending power,” MasterCard Chief Executive Officer Robert W. Selander, said in the letter to Durbin.

(Via Bloomberg.com)

Wal-Mart Canada Corp. is launching a rewards MasterCard credit card on Tuesday, shortly after being issued a federal banking license. Wal-Mart Canada Bank secured a final approval from Canada’s banking regulator to open a full financial services business in Canada, something the giant retailer failed to achieve in the United States.

The new Walmart Rewards MasterCard will give cardholders dollars instead of points, earning 1.25 percent of the value of all their purchases in Wal-Mart stores and 1 percent on purchases everywhere else MasterCard is accepted, the retailer said.

The rewards can be redeemed at Wal-Mart, with a minimum redemption value of $5. “At the point of sale, if you’re making a purchase and you’ve got $16 in rewards dollars, the cashier will ask you, ‘Did you want to redeem them today?’ You can say, ‘I’d like to redeem $5 or $6 or $11′,” explained Trudy Fahie, president and chief executive officer of Wal-Mart Canada Bank.

In the U.S., the Wal-Mart Discover card only gives back up to 1 percent cash back on purchases. It uses a more complicated tiered system for accruing rewards, which awards the full 1 percent cash back only if the cardholder’s spending reaches $3,000 a year.

(Via WSJ.com)

Citigroup sold its C$2.1 billion ($2 billion) Canadian MasterCard business to Canadian Imperial Bank of Commerce (CIBC), Canada’s No. 5 bank said on Monday. CIBC, which previously issued only Visa credit cards, is now becoming a dual credit card issuer.

“Through this transaction, CIBC, which had more than C$14 billion in outstanding credit card balances at April 30, 2010, will become the largest dual credit card issuer in Canada,” the Toronto-based bank said in a statement.

The deal follows a couple of recent purchases by the Canadian bank. CIBC acquired CIT Financial Ltd’s interest in CIT Business Credit Canada Inc for an undisclosed amount in April. In March it purchased a 22.5 percent stake in Bermuda’s Bank of N.T. Butterfield & Son Ltd., expanding its presence in the Caribbean while investing $150 million as part of a $550 million recapitalization of Butterfield, Bermuda’s largest bank.

“We have had these transactions on our target list for an extended period of time,” said CIBC Chief Executive Gerry McCaughey.

(Via Reuters.com)

MasterCard has rolled out a new family of credit and debit cards which feature a LCD display, using a technology developed by NagraID Security. The new feature is designed to help merchants accepting credit card payments online and over the phone authenticate their customers.

The basic form of the card contains a button and a small LCD display. When the button is pressed, a one-time password is generated from a known seed and a timer – both of which have been synchronized with MasterCard’s servers. By entering this password, the customer can prove that she is in a physical possession of the card. Moreover, the code changes the next time the customer presses the button, so that if anyone intercepts the transmission will not be able to use it.

The more complex versions of the cards feature a 12-digit keypad and can be used for electronic signature and authentication modes, as well as to enhanced security features such as challenge-response applications and PIN code card protection. With this type of card consumers authenticate themselves by entering a four-digit PIN and then the one-time password is generated.

Initially, MasterCard will try these cards out in Turkey. If the trial is successful MasterCard is likely to spread the technology to other countries and other credit card companies will probably follow suit in short order.

(Via Nagra.com)