Legal Seminar, Denver, CO

071018 Discussion Draft

1. Consumer side. Consumers achieve many benefits from using electronic payments, including: a. Consumer protection measures, including dispute resolution, which are not available from cash. b. Liquidity and access to funds without the risk of carrying them. c. Convenient access to credit (in some payment cards). d. Rewards for usage, including airline miles, hotel stays, cash back benefits, or charitable donations. e. Consumer demand for payment systems may be more elastic than merchants. Consumers have more alternatives for payment, while merchants have to accept payment cards and often have to accept more than a single card brand to avoid losing sales. See generally Ohio v. American Express Co, 585 U.S. __, n. 2 (June 25, 2018). 2. Merchant side. Merchants desire to participate in card networks reasons that include: a. Enhanced transaction volumes (due to liquidity effects and customer access). b. Outsourcing credit decisions (benefits from specialization, information disparities). c. Security of payment (versus extending credit) 3. What’s Not to Like? a. Privacy may be lost. o Some people value privacy even when their activities are legal. The real question: do they value it enough to give up the benefits from other payment methods? (What we say we value differs from what our behavior says we value.) o Some people value privacy because they are engaged in illegal activities. b. Cost. Someone must pay for benefits conferred, and much of that cost is born by the merchant side. o Consumers may willingly pay annual fees to get access to benefits. But they can make a cost/benefit assessment and often can avoid those fees through options that are better tailored for their personal usage. o Merchants face pressure in the marketplace to accept the payment methods that customers prefer. But with costs of 2-3 % (or more) common in the payment card industry, merchants are looking hard at cost saving measures. o Dodd-Frank brought legal relief by restricting debit card processing fees. However, most consumers find credit cards to be preferable. Why change to a payment method that is less beneficial if there is no incentive to do so? o Litigation challenges to card agreements have produced greater flexibility for merchants to impose surcharges, but market forces appear to restrict this practice. o American Express recently won its case, in which the Supreme Court held that its “antisteering” provisions designed to prevent merchants from incentivizing the use of other cards (but not cash or debit) did not

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