I'm getting charged for whaaaaa!?!?!

MSNBC's Red Tape Chronicles has an entry today that is burning up the blogosphere to the tune of 77 pages of comments when printed as a text document. The discussion is related to fees incurred through Debit Card purchases made with PIN numbers. In other words, these fees result from your keystroking your PIN at checkout in a bricks and mortar store rather than using it as "credit", which simply means you authorize the transaction by signing a piece of paper.

The distinction is related to the interchange fees I wrote about yesterday. Bob Sullivan quotes Gartner's Avivah Litan analyst that:

"a bank will take in perhaps 20 cents from a merchant for a $100 PIN-debit purchase, but $1.48 for a signature debit purchase in the same amount. In general, banks can make up to 50 cents on PIN transactions, with the fee capped. But banks can rake in up to 2 percent of signature-based transactions, a potentially huge haul."

In other words the interchange fees related to the pseudo-credit transaction allow the credit card issuing bank to charge fees to the merchant, who will raise the prices of the goods you're buying. As a result, the bank is making up for lost payments from the merchant by charging you anywhere from $0.25 to $1.00. Either you'll pay the fees in lieu of the merchant, or else you'll shift back to using credit.

Given the frequency with which Debit card users actually use their cards, this is definitely something to be on the lookout for. Mpayy will solve these problems with NO FEES EVER for consumers, and offering CASH BACK and a HIGH-YIELD REWARDS program that can be used as cash anywhere Mpayy is accepted. The ability to will only come when you PAY THIS WAY, and merchants will only let you do if you INSIST ON MPAYY.

About those Frequent Flier Miles...

One of the primary benefits Mpayy's payment system will offer to merchants is savings vis-a-vis credit card processing - both in the base rate, and the consistency of rates. This will stand in stark contrast with the variable interchange fees that are charged by the major credit card networks on an industry-by-industry basis, according to Zhu Wang in the Payments System Research Department at the Kansas City Fed. (See paper here)

According to a Diamond Technology Consultants, 44% of interchange costs go to pay for Rewards programs, while none of it is passed onto the merchants. Further, merchants are likely to pay 3% for association branding costs, while the interchange costs comprise only 14% of the fee.

Those rewards programs, also do not go on to necessarily benefit the consumer. A recent comment from Conde Nast Portfolio.com (@ MSNBC) report notes:

The basic American AAdvantage MasterCard issued by Citibank carries an annual fee of $50, the interest rate on purchases is more than 17 percent, and the cash advance rate is north of 22 percent.

In other words, the consumer and the merchant split the bill on purchasing airline miles through credit card fees. Merchants are paying through the aforementioned interchange fees, of which there are an estimated more than 100 different rates. Similarly, consumers are paying annual fees and virtually usurious interest rates to make purchases that may not even be worth the bytes they are stored in. The story continues:

"For example: Continental Airlines last month announced a wide-ranging increase in the price of its best awards. The number of miles required to get a free first-class domestic ticket rose about 11 percent; the cost in miles for some international business-class seats rose by 25 percent."

Mpayy to the Rescue

Mpayy will offer users a 100% free service to make purchases. In fact, it will be even better than that providing a network through which consumers can make purchases for $0.99 on the $1.00, and we are working on a universal rewards program that will be available to be used as cash anywhere Mpayy is accepted. Members can transfer moneys among themselves as much as they like... there is simply no reason to pay 15% interest on that online t-shirt purchase.

For merchants, Mpayy will offer rates that start well below credit card rates and go only lower depending on the volume offered. There will be no hardware required. Mpayy will never withhold merchant funds should merchants find themselves in violation of some unpublished Kafka-esque rules. All of this, plus, Mpayy will assume 100% of transaction fraud risk removing the burden of maintaining secure credit card information allowing companies to focus exclusively in their wheelhouse.