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Sponsor Spotlight - Exactly Which Interchange Are You Paying?

By Bob Carr, CEO, Heartland Payment Systems

I was invited to give a keynote speech at the Strategic Leadership Forum of the ETA last month in Scottsdale.  As one of the original eight members of the Bankcard Services Association (BSA - the former name of what became the ETA) formed in 1988 and as its first Vice-President, I thought the ETA members present might enjoying hearing a little history about the formation of their organization that I don’t believe they had ever heard.

To start my comments I said that I would have some controversial comments to make at the end of my talk. The listeners were not disappointed that my ending comments were controversial!  I discussed how the ETA was initially formed to fight the sleezy image that several independent sales organizations had quickly brought to the industry in the mid-late 80s.  In fact, I resigned as Vice-President of the BSA in 1990 because the organization voted down the motion of the Ethics Committee to not allow membership to convicted felons – the same rule that applied to all bank officers at the time.

Then I mentioned the sleazy tricks that are practiced by some bankcard players today.  I talked about several categories of unethical practices and stated that some of these practices might even be considered criminal fraud.

One is allowing/instructing sales people to describe a pricing model as “interchange plus” that contains hidden acquirer/ISO mark-ups in the merchant statement meaning that the true interchange costs are inflated and not actually the interchange that any reasonable person would think they would be.  After all it is hard to get to 50% operating margins by telling the truth!

Specifically, you might want to check out your merchant statement and verify the column marked “interchange”.  Does this column represent the published interchange of the card networks or is there a little “bump” added just for fun by the company taking these monies out of your bank account?

I talked about other sleezy practices as well.  Some in our industry smugly look back at the bygone days of the gold chain and black t-shirt “smart guys” who were leasing $300 terminals for 7 year non-cancellable leases of $99 per month thinking that “we have now cleaned up the industry”.  (The only reason this has almost completely stopped is because even small merchants have learned the hard lessons of this highly unethical practice.)

But now we have a few sophisticated geniuses with MBAs studying the criminal sections of the code to see if they can get away with marking up what merchants think is interchange without going to jail.  I am not sure if this is a crime but I know it is unethical.

Another practice is to arbitrarily debit merchants for “just because” fees without any warning and then to give back the purloined monies to the small minority of merchants who call in to complain.  If a person walks into a convenience store and takes $65 out of the cash register, then s/he can go to jail but if another smart guy takes $65 out of hundreds of thousands of merchant bank accounts, he is given a promotion and is considered a genius.

After this talk, it was only hours before an e-magazine published an article with the headline “Heartland’s Carr Calls for Regulation of ISOs”.  What is true is that I was talking about practices that are not uncommon in our industry today by acquirers and ISOS, not just ISOs.  What I was actually calling for is enforcement of existing laws that are already on the books.  I don’t think it is legal to lie about interchange for the purpose of deceiving a merchant but then again I am not a lawyer.

In response to this article designed to make ISOs think I was calling for more regulation, I wrote an open letter to the payments industry calling for the end to these unethical practices and asking the ETA to take the leadership position.  The head of the ETA, Jason Oxman, responded with an open letter of his own.  I respect Jason very much and think he may be the best leader the ETA has ever had but Jason and I don’t see this problem the same way.  We respectfully agree to disagree.

Of course most MAG members are very large merchants and most acquirers/ISOs wouldn’t dare to do these things to you, right?  Don’t bet on it.

Bob Carr, CEO, Heartland Payment Services