Merchants: Profiling bad for business, but higher merchant fees worse

I was very busy on Capitol Hill today.  Once I figured out my way around Washington, D.C. using the Metro, which is great by the way, I met with important people and organizations that can help increase regulation for credit card companies. 

For this post, I focus on my first meeting with a merchant organization.  The organization, which has members like Walmart and other major retailers, is large and has considerable influence on affecting national policy. 

During my meeting, I learned a lot about issues affecting merchants and other interesting news.  For example, I was informed that Walmart received an apology from American Express as a result of this campaign listing some of the possible bad retailers.  (I haven’t been able to verify this yet, but it is very likely. If I do, I certainly will let everyone know and try to obtain a copy of the letter.) 

Furthermore and more importantly, the organization’s director told me that many retailers had no clue that merchant blacklists existed until my story broke. Even though retailers that are a part of the organization are outraged about “merchant profiling”, they believe that there isn’t much they can do.  I was hopeful that I would get their support for my efforts in the form of a letter.  Despite off-the-record support, I didn’t get that official letter, and here’s the reason.   

American Express, as opposed to Visa and MasterCard, for example, has considerable control over merchants because its merchant fees are negotiable.  This major fact puts merchants and their organizations in a precarious position.  If merchants join the fight against American Express, they will subject themselves to possible higher fees.  If they altogether get rid of American Express, they will alienate customers. 

The opportunity cost of publicly denouncing American Express as an organization with a public member list is low. Retailers will win a “moral” battle at the expense of revenue. In other words, the merchants are mitigating their risk of higher merchant fees.  In many ways, the retailers feel as helpless as consumers who are afraid to challenge the system for fear of reprisal through interest rate hikes or account cancellation.  (See post “Fear of reprisal, a common sentiment amid hundreds of e-mails”.)

Once I learned that there would be no letter, I was disappointed but encouraged to know that they believe in what I am doing.  After getting beyond the letter, we did discuss other more effective strategies and ways to address the problem at hand. In short, what started off as a disappointing refusal turned out to be a productive meeting, the details of which I will share later. 

Comments

[Delegate Saqib Ali]

Kevin,

Check it out. I have uploaded the video recording of the bill hearing and also posted the Power Point presentation I gave. You will love it. You were amazing:

http://www.saqibali.org/blog/2009/02/house-bill-1292-consumer-protection.html

- Saqib

[Dr DW]

We cancelled our merchant account with AMEX earlier this week as a result of their abrupt and unwarranted cancellation of my personal card. (They later cancelled our corporate card because the two were linked.) The response from our customer base has been very good. Remember, your customers are reading the news as well. They watch Good Morning America. They listen to Planet Money podcasts. They're aware of what's going on and it doesn't surprise them when we tell them we're no longer feeding the beast. One customer said "There's always another card..." Another exclaimed "I don't know why I carry it anyway,...no one else is accepting it." AMEX's rates and capture fees were predatory in the first place. They took the longest to pay us of any of the other credit card companies as well. At a time when they should have been reaching out to their merchant cardmembers they chose to put the screws to us (all of us) Reap what you sow AMEX.