Payment Alternatives Get A Boost From Negative Report On Credit Card Fees

A consulting firm's recent report that credit card interchange fees are weighed against retail interests may help push alternative payment methods. That might put pressure on the credit card players to soften their fee requirements.

The report from the Chicago-based Diamond technology consulting firm found, for example, that some 44 percent of interchange costs are used to fund credit card rewards programs even though "merchants get nothing out of these programs because they are competitive tools for issuers. Merchants likewise pay about 3 percent of their interchange dollars for association branding costs. Meanwhile, processing— the original reason for interchange—comprises only 13 percent of interchange costs. Given the merchants' lack of perceived value for what they pay, the situation is clearly unstable."

The report holds out hope for contactless payment options, cellphone payment and other alternative vendors including PayPal, Debitman and PayByTouch.