Friday, July 13, 2012

History of who cashes in on the cashless society

I once talked with a lawyer who was deeply engaged in creating the protocols for electronic banking. To my surprise I found myself fascinated as he sketched out the accounting and legal complications involved in the systems that move money around with neither cash nor pieces of paper.  I remember little of the detail, but I've never since thought of online banking systems or credit and debit cards as simply "there."  Everything has a history. There are people in there trying to make those systems work for them.

If anyone is up for writing a social and economic history of the Interac system (hey, I'd read it), you may have a critical moment of historical change emerging right now. You will know it when you get a Visa debit card in the mail from your bank. (Mine came yesterday)

How do these debit cards differ from your Interac-enabled client card?  Price, mostly -- not to you directly, but to the merchants you deal with.
Visa’s debit card is a completely different beast. Unlike Interac and MasterCard, Visa intends to charge a transaction fee based on a percentage of the purchase price. The average cost is said to be 0.25 per cent plus 15 cents per transaction. This means that a $25 pizza order will cost the merchant 21 cents, whereas it would generally cost between seven and 10 cents under the current structure of Interac.
“Merchants are pretty savvy. Why wouldn’t they want to introduce competition to the debit space?” says Whitney [Visa's head of debit]. 
For small business operators, the answer seems fairly straightforward: extra cost. When it comes to pricing, Visa effectively passes on the responsibility, arguing that there is a contract that exists between the bank or service provider and the merchant that is “outside the scope of Visa.” ....
According to Brisebois, it is clearly Visa that dictates, and benefits from, charging a percentage-based fee. 
For opponents of Visa debit, it doesn’t make any sense to charge a percentage-based fee when there is no risk and no credit involved.  
Looks like Interac, the cheap semi-cooperative system of debit processing, is about to become history itself in favour of the credit card industry that brings you those 21% interest rates on unpaid balances. The Government of Canada?  Well, they have suggested a voluntary code of conduct the industry may want to observe.

(Quotation is from Andrew Silver, writing in -- who knew? -- Canadian Pizza Magazine. Things you can find online!)
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