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No, The Interchange Settlement Won’t Kill PayPal POS Plans, But It Raises Retailer Pricing Problems

Written by Frank Hayes
October 3rd, 2012

The fight over the interchange settlement is heating up again, with the biggest settlement opponent apparently trying to swing PayPal onto its team. On September 28, the National Association of Convenience Stores’ lawyer, Douglas Kantor, claimed that the settlement’s terms would hobble PayPal’s in-store payments hopes. (PayPal hasn’t said anything on the subject, which suggests how much of a reach this is.)

But even Kantor admitted PayPal could fix the problem with a simple change in its merchant terms. A much trickier problem for retailers post-settlement may be deciding what price to put on each item—or whether there even is a single official price.

Kantor told PaymentsSource that, under the settlement, retailers could levy a surcharge on customers who use a payment card. But the surcharge would have to apply to all payment brands, including PayPal, even though PayPal reportedly prohibits retailers from levying a surcharge for using its in-store POS system. Kantor’s conclusion: Merchants will have to choose between PayPal or an interchange surcharge—and Visa and MasterCard crafted this provision to cut the legs out from under PayPal and other smaller Visa/MC competitors.

“PayPal is a tiny player that doesn’t set the market,” Kantor told PaymentsSource. “Visa and MasterCard set the market, and their rule prevents competition.”

We’re pretty sure PayPal just loves hearing itself called a payments pipsqueak. We’re also sure PayPal has plenty of time to change any contract terms that would get in the way of its post-settlement POS plans, presuming the settlement ever actually goes into effect.

And we’re very sure this tap-dance is really about interchange, which NACS’s convenience-store members want reduced. It’s also about surcharge avoidance, because convenience-store owners know that would mean either that a lot of customers would walk away from the POS unhappy about being nickel-and-dimed—or that they’d simply walk away.

The interchange settlement isn’t the only legal proceeding that has players in the payments process complaining about someone else being victimized. On Tuesday (Oct. 2), a coalition of banking trade groups argued in federal court in Washington, D.C., that consumers aren’t getting the benefit from interchange caps on debit-card transactions.

“The merchants have claimed all along that imposing government price controls on interchange fees would directly benefit consumers, yet there is absolutely no evidence that consumers are benefiting,” said a statement from the bankers’ groups. “So while consumers have gotten nothing from the retailers, the merchants are back asking the courts to add even more to the $6 billion windfall they are now enjoying.”

That’s the type of “you’re grabbing interchange money from consumers that we used to be able to grab from consumers” argument that restores our faith in bankers.

But back to the PayPal problem.


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