August 26, 2010 | In: Financial

Visa and MasterCard: Wrong Vision For The Future

I was having a lunch today in a nice, cozy place. The food was not great, but it was “adequate”. I then proceeded to pay, the bill was for $12.95, I gave them my Visa card, but the guy told me, with a heavy accent, that “they don’t accept credit cards”. I didn’t understand what he said, and then he repeated himself, very politely, that they don’t accept Visa, only cash or debit. The owner of the place then came, and he thought that I didn’t have either, and he was willing to process my Visa payment apparently, but I just gave him my debit card, and he processed the payment.

I then told him that I had dinner here a few months ago and I remember clearly that I paid with my Visa, what happened? The owner told me that credit card companies upped the merchant rates a few months ago (even before the new rules came into effect), and now it’s costing him an extra $2,000 – $3,000/month for nothing, so he only processes credit card payment in exceptional situations (when the person doesn’t have cash or debit). Apparently credit card companies are trying to compensate for their potential lost revenue from charging poor clients exorbitant interests by making the merchant pay for the newly imposed regulations just to keep their stocks afloat. This is the second place that I go to in a week where the owner stopped accepting credit cards.

Let us examine why credit cards are popular:

- First and foremost, they are almost accepted everywhere.
- They are a very convenient way of paying online and offline, and you don’t have to carry cash anymore.
- They offer the person full protection against unauthorized transactions (they usually refund the money immediately), and you’re allowed to charge back for unwanted services.

Now imagine that 50% of the places you go to will not accept Visa, would you care about using Visa anymore (or MasterCard, or any other card for that matter).

Punishing merchants to boost revenue may work on the short term, and may even work for medium term, but is a bad strategy for long term.

V and MA closed at $69.91 and $203.17, respectively.

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1 Response to Visa and MasterCard: Wrong Vision For The Future

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Credit Cards Losing Market Share « Fadi El-Eter

September 8th, 2010 at 8:46 pm

[...] wrote last month on how credit card companies have a wrong vision by punishing the merchants with higher fees (to compensate for lower fees that they will be getting [...]

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