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  • Writer's pictureKen Mages

Card Breaches Are Necessary

For a long time I've worked in the card payment processing industry. Few people (not boasting) know the mechanics of HOW transactions are processed from the card to the middle-man to the issuing bank to the merchant and back. However, I know, and I know something else, these breaches are necessary for the card payment industry to survive.

Now that you think I am crazy, I hope I have your attention. There is a fee (called interchange) that card issuers charge to merchants for accepting their cards as cash payment which is nothing but an insurance scheme. In gambling, this fee is frequently called the vig or vigorish, and you can look that up yourself.

Think about this, if there was no fraud or fear of it in the card business, I mean ZERO, why would there be a need for interchange? Interchange or vig is the fee that card issuers charge merchants (and is passed on to you) to guarantee the merchant that eventually the transaction they ran at the cash register (on or offline) will be settled with cash, less the vig.

Let's say you and I both go to Walmart to buy a $400 lawn mower and let's suppose Walmart pays $350 for that lawnmower from the manufacturer. I walk in with my credit card, and you walk in with four Benjamin Franklins. Who is Walmart happier to serve? You, of course. When my card is swiped, Walmart must pay the card issuer approximately 2% for "guaranteeing" or insuring the transaction. So they net $400/98 on my purchase. On your transaction, they keep the full $400. If Walmart only accepted cash (which they tried), they would make more profits on sales, and you would pay even lower prices.

However, there is a cartel of card issuers that legally force merchants to accept plastic, and there is collusion to set these interchange prices (See Priceless, a true story).

Sadly, this is all easily fixed. Nobody at V/MC would believe me; they didn't want to when I presented the patented solution to this problem to the world, because it's in no bank's interest (pun intended) to repair interchange or prevent fraud. Think of it like gun violence without dead bodies. It can be fixed, but what's the incentive to fix something necessary to the biggest banks in the world?

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