The price for using that card… it’s simple. It’s just 80 basis points of the purchase price plus 17¢. Unless it’s for gas, where the 17¢ becomes 13¢. Or it’s a medical co-pay, where it is 120 basis points plus 20¢. Or if it is at a fast food restaurant, it’s 125 basis points plus 15¢. What? A Supermarket? That’s just 26¢, flat. Unless of course you are responsible for a bunch of transactions – then the price is lower; or even more transactions – then the price is lower still.

But that’s only one EFT Network, and there are variations and specials deals on top of it all. And in the U.S., there are over 10 more networks (14 in total that I track).

So, of course the default position is to simplify, right? There is too much information for merchants and Issuers to make an informed decision.

I’ll argue the other side.

What the industry needs is not less complex Interchange, but more complex Interchange. These rates should be negotiated between Merchants and Issuers, with the EFT Networks acting as the mediator. The Networks can set the baseline, but ultimately, the value that an Issuer provides the merchant is discreet. It depends on the cardbase, the geography, the mix of transactions, the frequency of use – ultimately the importance of the Issuer to the merchant’s business.

But it goes the other way, as well. As a bank, what good is my Debit card if it isn’t accepted at key merchants? If all of my customers want to go to Wal-Mart, then I need to make sure they can.

The Issuer needs the Merchant, and vice versa.

So why not let them agree on the rate. We might see some very interesting deals.

Obviously, the reason this hasn’t happened is because the Issuers can hide behind the Networks and say that the Network sets the price. But, in reality, the Issuers set the price by the Network membership they keep and the priority routing they enforce.

Maybe we should make this transparent – and ultimately more complex.

More later.

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