Financial services competition heats up
Retailers don’t like the fees they are required to pay Visa and Mastercard, but retailers are willing to charge unwary and unbanked consumers plenty of other fees.
Kmart offered a good example this week when it launched its new Halogen brand prepaid card, which resembles a prepaid product Walmart launched several years ago. It should be noted upfront that products from both retailers offer those without a bank account a way to conduct financial affairs in a modern and nearly fee free way if used responsibly. However financial responsibility may not be a strong suit of those who don’t have a relationship with a financial institution and if not used carefully prepaid cards are a worse deal than the inventive fees charged by banks and conventional credit unions. Mailed statement fee anyone? Want to speak with a teller? Ka-ching.
Kmart’s new Halogen card offers unbanked individuals some advantages. For example, cardholders will have access to free ATM withdrawals at a nationwide network of more than 20,000 ATMs. That’s 2,000 more than Bank of America promotes on its Web site. In addition, there is no monthly maintenance fee as long as certain requirements are met and cardholders can have their paycheck, a tax refund or government benefit check directly deposited on the card at no cost.
“Kmart’s Halogen Reloadable Prepaid MasterCard is a great money management solution for customers seeking an alternative to cash, credit or checking accounts,” said Jai Holtz, VP financial services for Sears Holdings, parent company of Kmart. “With the introduction of the Halogen Card, we’re giving our customers a smart, convenient and safe way to manage their money and gain control over their personal finances.”
Now for the fees. As a teaser, Kmart touts a zero activation fee for online sign up, but loading funds onto the card requires a visit to a store where a $3.95 is incurred. Walmart charges $3 for its card and $3 to load funds. Kmart charges $3.95 to purchase the card in the store, but there is no charge for the initial loading of funds. The fee for the subsequent reloading of funds in store is $3.95, whereas direct deposit is free. Direct deposit is free with Walmart’s card as well.
Where cardholders can get into trouble is if they don’t load at least $1,000 on the card in any given month or they make frequent loads in stores. Walmart charges a $3 monthly fee to cardholders to don’t meet the $1,000 threshold, a realistic possibility for those eking out a meager existence and are likely to be unbanked. Kmart hits these folks with a $5.95 monthly fee. Those with Kmart’s Halogen card face the prospect of a $2.50 ATM fee if they stray from the extensive MoneyPass network of ATMs while Walmart charges a $2 non-network ATM fee.
For cardholders who meet the deposit or usage requirements and stick with network ATMs the Kmart and Walmart cards can be a low cost and viable alternative to a traditional bank. For example, the deposit fee can be avoided if by using direct deposit. That might be appropriate for someone on government assistance, but not for those who operate outside of the formal economy and receive their wages in cash.
For example, consider an individual who loads their Halogen card weekly but not with enough money to hit the $1,000 fee avoidance threshold. They would be looking at a total of $21.75 in fees to load the card four times in a month. If they access an out of network ATM to check their balance (50 cents) and then used the same ATM to withdraw funds ($2.50) twice a month they would be looking at $6 in ATMs fees on top of the $21.75 in account fees for a total of $27.75. Over the course of the year an individual who used the Halogen card in the manner described would spend $333 in fees, whereas the card is virtually fee-free to those who pay close attention to the fine print.
“This program is another way Kmart is providing its shoppers with increased value,” said Ron Hynes, group executive, global prepaid, MasterCard. “The flexibility to load money – from their job or benefits – combined with the immediate access to use those funds in-store or online, delivers greater convenience over cash and checks.”
The Halogen card was developed with Green Dot Corp., MasterCard and Synovus Bank. The card is issued by Synovus Bank and serviced by Green Dot, the same company Walmart uses for it prepaid products.
Card issuer, merchant agreement unsettles some
Visa and MasterCard announced a proposed $6.6 billion settlement to a long-running dispute over the fees they charge merchants, but a growing number of voices are saying not so fast.
The major card issuers were eager to put the seven-year-old lawsuit behind them, but whether the matter is truly resolved remains unclear. Visa, MasterCard and other U.S. financial institutions who were defendants in the case signed a memorandum of understanding to enter into a settlement agreement with the class of U.S. retailers who sued in 2005. That’s not the same as an actual settlement and the National Association of Convenience Stores said it rejected the proposal.
“NACS does not accept this proposed settlement and we reserve the right to fight it if other class representatives do accept it,” said NACS president and CEO Henry Armour. “There is plenty of time for merchants to make thoughtful decisions related to this proposed settlement. We hope and expect that, as they have the time to review it, many other merchants including class representatives will decide to reject this proposal.”
In addition to the cash payment merchants would receive, another proposal settlement involves U.S. merchant class members receiving a 10 basis points reduction in credit interchange rates for an eight month period and retailers could begin adding a surcharge to recover costs associated with acceptance of Visa and MasterCard products.
Despite NACS’s opposition to the proposed settlement, Visa and Mastercard were eager to move on and statements by both companies gave the impression issues related to how much they charge retailers to accept their cards had been resolved.
“We believe settling this case is in the best interests of all parties,” said Visa chairman and CEO Joseph W. Saunders. “We are comfortable with the terms, which we do not anticipate will impact our current guidance. Visa is well positioned to help drive the migration to electronic payments in the United States and globally.”
MasterCard general counsel and chief franchise integrity officer Noah Hanft said his company’s stakeholders were best served by an amicable resolution.
“Although we have strong defenses to all claims, a settlement avoids years of litigation and uncertainties that are inherent in such cases,” Hanft said. “We believe that today’s settlements should resolve all issues with the merchant community.”
Jason Oxman, CEO of the Electronic Transactions Association (ETA), a group representing more than 500 companies who offer electronic processing products and services, also sought to put the matter to rest.
“ETA and its member companies are pleased that all parties were able to reach agreement to end this litigation,” said Oxman. “The process worked, and all concerns about interchange raised by merchants have now been fully resolved, which provides much needed certainty. Our members look forward to working with the card networks, issuers and retailers to develop the innovative new products and services that will benefit consumers and merchants and grow our economy.”
That’s not how the matter was viewed NACS where the response was swift and sharply worded.
“This proposed settlement allows the card companies to continue to dictate the prices banks charge and the rules that constrain the market including for emerging payment methods, particularly mobile payments,” said NACS chairman Tom Robinson, president of Santa Clara, Calif.-based Robinson Oil Corp. “Consumers and merchants ultimately will pay more as a result of this agreement — without any relief in sight.”
As a class plaintiff in the litigation, NACS sought a trial to establish that the anticompetitive practices engaged in by the credit card industry are illegal. NACS also pushed to end the practices engaged in by the credit card companies that don’t allow for market competition.
Visa and MasterCard will continue to separately price-fix fees for thousands of their bank members, according to NACS, and that means that banks won’t have to set their own prices and compete like other businesses throughout the U.S. economy. And Visa and MasterCard can continue to police how merchants price their products and stop them from showing consumers the cost consequences of using different credit cards — unless merchants drop American Express, according to a NACS statement.
The proposed settlement also sets a dangerous path for the future of the payments landscape because Visa and MasterCard will be able to use their power in the market to prevent new entrants, like PayPal, from expanding their share of the market, according to NACS.
Even if the matter is ultimately settled, a new battle looms between card issues and retailers over the use of surcharges and how they are communicated to shoppers.
“Merchants involved in this litigation demanded and were granted the power to impose a surcharge on consumers who choose to use a credit card to make a purchase,” said Oxman, CEO payment processing group. “Merchants will have the ability to impose a surcharge on card purchases with no requirement to reduce prices, a power it is our hope that merchants will not exercise to the detriment of their own customers. Consumers should be vigilant to ensure that merchants treat them fairly and that they are fully informed.”
Retailers could begin collecting the surcharges in 2013, setting up a new public relations battle between merchants and card issuers over whether the surcharge is a move by retailers to increase profits or simply pass through an expense they view as excessive.
Fiber One launches kid-friendly snacks
MINNEAPOLIS — Fiber One has introduced new snack bars for kids.
Fiber One Chewy bars tout 110 calroies or less and 8 g or less of sugar and do not contain high-fructose corn syrup, Fiber One said. The bars are available in chocolate and strawberry PB&J varieties and are complete with a peanut butter or chocolate-flavored bottom.
"Kids won’t be able to resist the taste and parents won’t be able resist the wholesome goodness of new Fiber One Chewy bars," Fiber One associate marketing manager Julia Travis said. "We’re excited to bring the delicious taste of classic, kid-favorite flavors chocolate and strawberry PB&J to the table."
New Fiber One Chewy bars are available in six-count box (1-oz. bars) for a suggested retail price of $3.89.