Wednesday , April 24, 2019

COMMENTARY: For Merchants, Much Has Been Accomplished, Much Is Yet To Be Done

Merchants have come a long way since the inception of the Merchant Advisory Group, but far more needs to be done to restore some semblance of balance in payments.

Upon reflection, it is remarkable that traditional merchants had no formal means to get together to discuss payments until the MAG began operations 10 years ago. Despite the fact that the cost of payments acceptance had risen to the second- or third-highest cost of operation, merchants continued to endure upwardly spiraling costs with little inclination to publicly oppose them.

The Great Recession strengthened merchant resolve to do something about the cost of payments. For the first time, merchants collaborated to bring their arguments to Washington, and they prevailed as a result of the public’s displeasure with banks and the general feeling that something needed to be done to control banks’ excessive market power and greed.

Horwedel: “The current payment paradigm in the U.S. is not sustainable in the face of advances in technology and competition throughout the world.”

Merchant militancy was at least partly responsible for passage of the Durbin Amendment within the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was merchants’ first major victory over banks on payments issues. Although much of the value of Durbin has been eroded by the relentless efforts of the banks and the global networks to circumvent the financial benefits of the law, it remains a landmark victory for merchants and is the primary catalyst for their organized political resistance to the banks and networks.

From my perspective, merchant collaboration is the biggest single accomplishment of the MAG. This hallmark of the MAG will likely endure and strengthen going forward. In fact, merchant collaboration is beginning to spread around the world as the MAG and other merchant advocates have started to discuss mutual concerns, including the ever-rising cost of card payments and the more recent shift of responsibility for fraud from the card issuers to the merchants. My message to our international merchant brethren is “don’t let them do to you what they have done to us.”

Aside from collaboration, merchants are looking to other means to contain the costs of card payments and to oppose the growing market power of the dominant card networks. The MAG can help by publicly advocating for use of the automated clearing house and for the Federal Reserve to take a prominent role in emerging faster payments. The MAG can objectively analyze the new technology initiatives coming from the network-controlled EMVCo standards body to ensure that merchants know all the facts before they adopt these technologies and buy into the siren songs of the global networks.

Finally, the MAG needs to develop merchant payments professionals by finding more and better ways to educate them. Merchants can no longer afford to relegate responsibility for payments to untrained staff given the substantial impact of the cost of payments to their companies’ bottom line.

From an outsider’s perspective, it may appear little has changed in the last 10 years in payments, but the seeds have been sewn for significant and ongoing change where merchants gradually assume their rightful role in shaping the course of payments in the U.S. and the world. Eventually, merchants will participate as equals to banks in developing the standards by which payments are made and in negotiating the costs and benefits of payment acceptance.

The current payment paradigm in the U.S. is not sustainable in the face of advances in technology and competition throughout the world. U.S. merchants are ready for change.

—Mark Horwedel is stepping down after seven years as chief executive officer of the Merchant Advisory Group.

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