National convenience store chain 7-Eleven announced last Friday, September 25th that it had collected 1.6 million signatures on a petition asking Congress to allow merchants to collectively bargain with card issuers on interchange fees. The week before, on Thursday, September 17th, Visa released its own survey results showing that consumers don’t want merchants to be able to shift costs to them. Today (September 29th), MasterCard chimed in with its own survey results, again showing that when consumers are told that interchange legislation would raise their costs or cut their benefits, they don’t like it. Clearly, for both Visa and MasterCard to be spending so much time and money on these surveys, they must feel that the 7-Eleven petition is a threat. But is the fight for consumer opinion really worth the effort?
As someone who has done a lot of surveys, I can tell you that it is very easy to get the response you are looking for on a survey just by wording the question a particular way. In fact, this is a common problem that we have to work hard to avoid in order to get reliable data.
It’s all how you frame the issue. For 7-Eleven, the key point was that credit card fees are disproportionately high, relative to the rest of the world, and that this hurts the ability of small businesses to stay profitable. For Visa and MasterCard, the key point was that consumers do not want merchants to shift costs onto them. Both are true, but the consumers are not getting the whole argument in either case, and so their answers are wildly contradictory, and no use at all in making public policy.
There is a certain amount of cynicism at work here on both sides; 7-Eleven and the card networks are calculating that congressmen and senators will not be sophisticated enough to recognized biased polling when it occurs. Remember, however, that politicians are expert poll users. They know from direct experience how surveys can be used to influence public opinion.
As I wrote previously in my comment on the banks’ reaction to the Credit CARD Act, card issuers have made their job much harder with their heavy-handed tactics, such as raising rates, raising fees, and cutting credit lines. Recent press releases from JPMorgan Chase, Bank of America, BB&T and many others announcing the end of automatic courtesy overdraft on debit cards and reductions in the associated fees, even before any legislation has been passed, suggest that senior management at those banks have realized how badly their previous strategy backfired and are now trying a different tactic: acknowledge that the critics have a point and make the requested changes proactively, on their own terms, improving their public image at the same time as they undermine the case for legislative action.
This makes the interchange issue all the more critical, because reducing overdraft fees is really going to hurt profits. However, suggesting in a survey that cutting interchange will cause banks to raise fees on consumers is probably not the best idea right now. As I noted above, issuers tried threatening fee increases with the Credit CARD Act, and it not only failed, it has now gotten them in an even worse position, with Reps. Carolyn Maloney (D-NY) and Barney Frank (D-MA) introducing legislation last week to move up the effective dates for the Credit CARD Act from February 22, 2010 to December 1, 2009.
Instead, issuers should sit down with the merchants and cut a deal. Nobody really wants legislation, because it reduces the options for everyone. In any case, any broad-based interchange negotiations would certainly have to give large merchants more influence over the outcome, and that would be very bad news for the little guys. Visa already lowered fees for gas stations last year when rising gas prices caused interchange to spike; they could do the same for other types of small or low-margin businesses, and take a lot of the momentum out of the legislation. The small businesses are the real threat here, because of their influence at the congressional district level.
I realize that this is much easier said than done, but trying to fight it out in the court of public opinion is a losing strategy for the banks, especially now when so many consumers are already angry at them. Unbundling interchange to make merchant-funded rewards and fraud management separate services, while reducing the base rate to cover operating and financing costs, could actually open up new economic opportunity, and allow issuers to differentiate themselves more easily.
