C-Store Managers Add to Chorus of Merchants Opposing Interchange Settlement

Merchant plaintiffs and the payment card network and bank defendants should return to the bargaining table and hammer out a new solution to the credit card interchange litigation for which they announced a proposed settlement July 13. That’s the conclusion of Aite Group LLC in releasing results of its recent survey of convenience-store owners and managers, who seem be to turning thumbs down on the pending deal.

A number of merchant trade associations and big retailers have already come out against the settlement over the past two months, saying it will not change the fundamental nature of credit card pricing. Aite’s results, though based on a small sample, add to the perception that merchants don’t like what they’re seeing.

“I have more strong doubts that it’s going to get approved,” says Madeline K. Aufseeser, an Aite senior analyst and co-author of a report about the Boston-based firm’s e-mail survey in July and August of 54 c-store owners or senior managers. Aite obtained a list of potential industry respondents from the subscriber list of Rocky River, Ohio-based Convenience Store Decisions magazine.

The leading c-store association, NACS, formerly the National Association of Convenience Stores, was a plaintiff in the 7-year-old litigation but has come out against the settlement negotiated by attorneys for both sides. The deal calls for Visa Inc., MasterCard Inc., and some bank defendants to pay $6.6 billion in damages and for the networks to provide another $1.2 billion in temporary credit card interchange rate reductions. The networks also would ease some of their rules for merchants, particularly their restrictions on surcharging. In return, merchants would give up future rights to sue over interchange and rules.

Asked who they think the biggest winners would be if the proposed settlement gets court approval, 65% of Aite’s respondents said Visa and MasterCard. Some 50% said credit card issuers, and 43% said American Express Co. and Discover Financial Services, even though they were not involved in the litigation. Only 31% cited merchants as winners, 15% said consumers, and 11% named merchant acquirers.

Conversely, when asked who would lose under the plan, 59% of respondents said consumers and an equal number said merchants. Twenty-four percent said merchant acquirers. Only 13% thought credit card issuers, the recipients of the interchange fees set by the card networks and ultimately paid by merchants, would be losers. Twenty percent named Visa and MasterCard.

Some 57% of the c-store executives do not expect merchants’ payment card acceptance costs to be “materially reduced” as a result of the settlement. Many merchants might try to cut those costs, however. Eighty percent of respondents expect small merchants to either surcharge or begin offering discounts for payment forms other than credit cards. Fewer respondents, but still a majority at 52%, expect big merchants to take similar actions.

Aufseeser, however, doesn’t think surcharging or other offsetting programs will get too far. Ten states, including some of the most populous, already ban surcharging, and the settlement spells out a number of conditions that a surcharging merchant must meet. The computer programming and disclosures required to implement surcharging also present hurdles, and these are barriers of which Aite’s respondents are aware. Only 35% said yes when asked if surcharging is technically feasible for them, while 45% said maybe and 20% said no. “Which is why I don\'t think it’s going to fly,” says Aufseeser.

While a number of respondents cited the opportunities created by the settlement to differentiate their prices to recover card-acceptance costs, most c-store owners and managers seem to agree with the NACS position that the plan doesn’t add an element of pricing competition in setting interchange, according to Aufseeser. Plus, a strong majority of respondents, 69%, disagreed with the statement that “the proposed settlement will put interchange regulation to rest once and for all.” Only 11% agreed, 19% were neutral, and 2% had no response.

The card networks and the Electronic Payments Coalition, a lobbying group of networks and banks, have consistently supported the settlement and have said they believe it will gain court approval. The plan, pending before Judge John Gleeson in U.S. District Court in Brooklyn, N.Y., must clear a number of hurdles before becoming final.