Credit card issuers elbowing in on more transactions

I've just received a friendly message from my bank that I can now set up pre-authorized payments against my credit card. Pre-authorized payments have been available for decades through cheque-based accounts. My bank is now making it easier to do the same for credit card accounts. By making this available online, or by phone, it seems to be even easier than from my chequing account (which for most vendors seems to still involve the provision by snail mail of a void cheque and written authorization).

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This all looks great for the consumer, which I'm sure it's intended to. What's interesting is that my bank has not offered the same convenience for my usual chequing account. After all, there isn't much in it for them, whereas they can ding these service companies being paid through a pre-authorized credit account a percentage of every one of those transactions. If it was a debit account, that would be perhaps $0.35 per transaction; if it's a credit card, it's 2% or more of the value of the transaction, and if the poor credit card holder hasn't paid off their account, then there will be plenty of interest at 18% per annum on top of that.

Such services work hand in hand with the current trend towards travel, points or cash-back cards. High net worth credit card customers are encouraged to have one or more of these in their wallets or purses, and to use it as much as possible in order to maximize their awards each month. Not only do such cards encourage a larger percentage of consumer spending to be made with costly credit cards instead of the inexpensive Interac debit system, but those transactions are more expensive than transactions with a no frills credit card. That extra cost is, of course, kicked back to the card holder as points or just "cash back". They are being bribed to use their credit card with their own money (as well as a chunk of what all of the other customers pay as well, since vendors are not allowed to charge their credit card customers more and so have to spread the cost across all of their customers).

While I have not seen any comprensive estimate of the costs for servicing credit cards in our economy, there is no doubt that it's significant, and that it is increasing as we use credit cards for more transactions as well as finding more opportunnities to get something back for our purchases. This all fits well into obvious though not often stated policies of our neo-liberal economic system:

• Look out for #1.  Do what benefits you and don't worry about what it might cost anyone else.
• Don't interfere with anyone trying to make a profit. The "right" of corporations to make profits has become sacrosanct. It's embedded in the "investor rights" provisions of the free trade agreements we've been signing, and it's extremely unusual for our government to interfere with whatever schemes corporations come up with to find new profit streams.

If our government was really interested in an efficient economy, they would provide some effective cap on the cost of us using plastic payment methods. The Interac model demonstrates that the actual transaction cost is really quite insignificant, but credit card issuers are permitted to charge whatever the market will bear. The main opposition to date against even higher transaction fees has been from the vendors themselves who pay  those costs and so see them directly (whereas consumers don't see them and seem trained to ignore them).

What we're seeing is effectively an unregulated tax on commerce, with the credit card issuers (mostly the banks) skimming off a few percent of whatever comes their way, kicking back a bit to some customers as points or cash-back, and keeping the remainder after paying their processing and perhaps a bit of interest to carry the payment until the cardholder's next bill payment.