Merchant Beware
By Mark Horwedel, CEO, Merchant Advisory Group
September 8, 2014
Beware much of the payments industry-The payments industry is unnecessarily (and some would say intentionally unnecessarily) complex. The present system gives rise to all sorts of abuse – especially abuse of small businesses - by those who capitalize on the knowledge gap; merchants are typically the victims of this exploitation. Merchants did not want to become payments experts, but they have been forced to become payments experts.
Beware the Payments Media-We live in a payments world in which the media is dominated by pay-to-play publications that contribute to the many myths surrounding the U.S. payments system. While merchants spend most of their media dollars to promote the sale of goods and services, many payments system operators spend their money trying to convince the public as well as the merchant community that credit and debit cards are the most efficient way to make purchases. Most savvy merchants don’t buy the propaganda knowing from their own business experience that cash is still one of the cheapest forms of tender and cash acceptance doesn’t carry the threat of putting their enterprise out of business the way card acceptance does. Be skeptical of studies that conclude credit cards are one of the least expensive forms of tender. That may have been true in the 60’s and 70’s before the upward bidding war between the networks trying to attract big issuers to their brands began and before PCI succeeded in making credit and debit card fraud the merchants’ problem, but it’s not true today.
Beware Professor Payments-Sometimes you have to question how so many so-called scholarly reports from Professor Payments can conclude the opposite of what is suggested by common sense. Unfortunately, this is what happens when Professor Payments (a known shill for Wall Street) is trying to convince the Public that reductions in card acceptance costs don’t lead to lower merchant prices. Some of us who are not economists were still required to take Econ 101 and remember that lower costs typically lead to lower prices in a competitive market - especially when technology improvements are so vast - so why did Professor Payments come to a different conclusion when studying the impact of the Durbin amendment on merchant prices? Is it possible Professor Payments got paid to arrive at the pre-ordained conclusion of his/her so-called informed and objective study?
Beware Pseudo-Payments Standards-Real standards are the product of an open standards forum like the American National Standards Institute (ANSI). Open standards bodies create a forum for all interested parties to participate on an equal basis. Most of the existing payments standards were a product of ANSI and its parent International Standards Organization (ISO). The Payment Card Industry Security Council (PCI) and EMVCo are not real standards organizations. They are owned and controlled by the bank-oriented networks. Their pseudo-standards are not the result of an open process in which merchants, consumer groups, governmental bodies and other payments stakeholders have been granted a seat at the table that ultimately approves their actions. It should come as no surprise to the merchant community that the activities of PCI typically result in increased costs to merchants and exposure to major breaches of the banks’ fraud-prone card products.
Don’t be an uninformed Merchant-Banks learned to network with their competitors 50 years ago and merchants began to suffer as a result almost immediately. Merchants will continue to lose in the payments game until they work together to share ideas and knowledge of payments. Ultimately, merchants may need to form their own networks in order to gain parity in payments with the banks. MAG members are the best informed merchants in the business. They don’t believe paid-for propaganda and they don’t buy their payments publications in the fiction section.