From a merchant perspective, one of the most harmful features of today’s card networks is default pricing. One merchant advocate succinctly described the anti-competitive impact of default pricing, stating, “with default pricing, banks have no incentive to compete for merchants’ business.”
Today, individual merchants are forced to face off against all of the biggest banks in America hiding behind one of the two dominant networks. Merchants (and their customers) always lose, and prices keep going up, while the banks and their networks line their pockets.
Default pricing as practiced by the networks essentially sets an arbitrarily high price to merchants for accepting all branded bank cards at their locations. While the networks contend banks are free to compete for merchants by charging prices below the default levels set by the networks, banks have no incentive to do so. This has led to a situation in which bank competition for merchant acceptance is non-existent.
Bank proponents might argue the banks do not literally set the fees merchants pay when accepting bank cards for payments. Instead, banks rely upon default fees set by the networks to which they belong. Just as the late comedian, Flip Wilson, was always fond of covering his tracks by saying “the Devil made me do it,” the banks are often heard saying “the network made me do it.”
Unfortunately for merchants, the default fees are set high and have no relationship to actual cost. As rates have increased while the costs of electronic payments have steadily decreased, the networks now say they set prices based on the “value” they provide. In practice, default fees are used by nearly every bank, since there is little reason to accept anything less than the default fees set by the networks. After all, merchants have no choice but to accept all banks’ credit or debit cards or accept none of them.
While bank cards issued by members of the two dominant card networks are perhaps the most poignant example of instances where banks collectively set the fees and the rules merchants must pay and abide by, there are many other examples in which banks have banded together to set default prices and bank-friendly rules. These include Nacha, The Clearing House, SWIFT, EMVCo, PCI, and countless local clearing houses designed to exchange and settle checks.
They are all distinguished by allowing only banks, bank networks, and other “federally insured depository institutions” to be voting members. That means banks stay in control over their several payments domains. While, in some cases, representatives from merchants, consumer interests, government, and other stakeholders might be included as secondary or tertiary members, there is no doubt banks remain in control.
In the United States, only the following industries are exempt or partially exempt from anti-trust laws: newspapers; utilities and cable; agricultural co-ops; railroads; and insurance. Since banks are not among the businesses granted at least a partial exemption from antitrust laws, how can default pricing be legal?