Wednesday, October 17, 2007

To Buy Or Not... Dubai (with Credit Cards)

A wry, contented smile forms on my face as I have been empowered to write about a subject matter that screams with an intensely sardonic and sarcastic "bite" to it! I do indeed, enjoy moments like these. This one here has to do with "deer ole" Visa.

Allow me to "illustrate" further...

There's an interesting article in Gulf News regarding Visa, Interchange Rates and Gas Stations. I've have taken the time to blog several times on how Visa and MasterCard are basically stickin' it to gas station owners.

Now, ironically, of all places, gas station owners in the United Arab Emirates
, are telling Visa that their Interchange Rate hikes are too high and they are cutting them off...thus "stickin' it right back" at them. The irony is that Dubai, who tells Visa to take a hike...after Visa hikes the rates...this is too much. What a poetically just world we live in, is it not?

So, I'll pose the questions that begged be asked: "What is the fallout for Visa?" Is Dubai the little boy that told the Emperor he wore no clothers? Is it just the very beginning of a potential major revolt by merchants and retailers which could cross over into additonal retail spaces?

Or does Dubai's petrol stations overestimate how much power they have over Visa?

Appears to be a dilemma similar to that which faced my dog out in the yard this summer. (Click the Deer/Schnauzer Picture on the right)

It's a face-off, a standoff and I for one is interested to see who'll win. This is Ali vs. Frazier. Frazier (Visa) thinks he'll win this fight on the merit of being awarded more basis points, but that's also the basis behind the point that Dubai is making. This fight has the dubious (or is it Dubai's) distinction of taking place in "Ali's" (Dubai's) backyard. I think Visa is playing with fire and this has the very real potential to blow up in their face.

This development is going to be an interesting one to watch. I've developed a picture in my head on who has dominion. Is it Visa or the petrol stations? Well Round 1 of the Main Event takes place this Saturday, October 20th when Visa takes away the "plastic card terminals."

I'm going to go with the UAE because it's their backyard and they have an alternative payment system. Oh, and isn't the customer always right?

Why doesn't Visa understand that the merchants are their customers too? Visa likes to hype that passing a surcharge onto the retailer's customers is an unfair business practice, but if practice makes perfect, then Visa is the closest thing to being hyperfect. Prior to debit cards, Visa charged the very same consumers they are trying to protect, loan shark annual credit percentages, especially during the 1980's. Hypocritical behavior like this has landed them in hot water with anti-trust suits in the past.

So I'll keep an eye on out on this one and let you know the end result. Irregardless of what happens, it certainly bodes well for alternative payments systems like Pay By Touch. As it plays out it will provide a backgrounder for a real life story with real life action and a real life ending.

It's "Why PBT is Ripe for Gas Stations". If you haven't yet, or would like to refresh your memory, take a gander at: "How Pay By Touch Can Put a Tiger in it's Tank" (August).

It explains how ridiculous Visa is being with their Interchange Rates on gas station owners, and how they've brought this on themselves with the anti-virtues of greed and lack of compassion. Visa and their interchange rates are fast becoming the enemy.

Here's the story from Gulf News.

I would've entitled it: Will Visa Regret Smokin' Dubai?

Ban on credit cards in it a bad sign for Visa?

Starting Saturday all Emarat, Enoc and Eppco stations will not accept credit cards for payment. Only self-branded store credit or smart cards will be accepted as well as cash.

Plastic card terminals to be removed

A Visa spokesperson told Gulf News card acceptance terminals will be removed from all Eppco, Enoc and Emarat petrol stations from October 20 while outstanding issues are resolved.

"Parties involved in negotiations regarding the issue of surcharging have not reached an agreement in the short term. Discussions will continue with all parties working towards a suitable outcome," the firm said.

The company said "millions of merchants throughout the world accept international payment cards and do not surcharge because it is good for their business." "Banks, consumers and retailers all benefit from the safety and convenience of payment cards and the cost of the payment system should be shared by all parties. (Editor's Note: Are you kidding me? Visa Needs a new PR Spokesperson. The only one benefiting from the higher gas prices is Visa, (ok...and maybe, just a little bit, the United Arab Emirates)

"Surcharging passes the retailers' costs to the consumer," the spokesperson said, adding that by charging for the use of card payment, merchants are "subsidising an inefficient system at the expense of a more efficient one." According to industry sources, banks and petrol stations are in discussions about Emarat and Enoc's decision to ban credit cards at their outlets while a Ministry of Economy officials has said no laws have been broken.

Abdullah Al Saleh, an undersecretary at the Ministry of Economy, said the issue has nothing to do with consumer protection as there is no legal provision to force companies to accept credit cards.

"I do not see a conflict with the Consumer Protection Law. It is their [companies] policy how they want to sell their services," he said.
Residents have said the ban on credit card use at petrol stations was an additional bother they do not need and is bound to create longer waiting times at the pumps as people will be unprepared.

Rima Hassan, 21, a student from Lebanon said she has trouble keeping up with her Salik payments so topping up a pre-paid card for petrol will be a hassle.

"In the beginning it will be a problem before people get used to it. People depend on cards as it is not often that you have cash on you," said Hassan. Dubai resident Golda Arthurs, 39, from India said the new system will not help consumers at all.

"It's ironic because they develop parking meters you have to pay with a card and then they make you pay for petrol with cash. Using a credit card generally facilitates everything you do but banning it is going to make life a bit more difficult," said Arthurs.

According to a bank official the increase in fees levied for accepting credit card payment has only risen 0.2 per cent. "The fees increased about a year ago for petrol stations from 1.35 per cent to 1.4 per cent for each transaction and petrol stations were fine with it for a year.

It was recently increased again by 0.2 per cent to 1.65 per cent," said a banking source. "Petrol stations are not supposed to charge customers because it is not part of the agreement between banks and petrol stations. Now all concerned parties are in talks," he said.

Editor's Note: I know I'm not from Dubai, but let's see if I can translate what this banking source said. I think he said, and I'm translating loosely, that "the fees were increased a year ago by 5 basis points, and nobody complained, so we thought we'd quadruple them this time around, and raise them 20 basis points. After all there's nothing they can do, especially charge their customers more, only we can, because it's not part of their agreement. Apparently, the agreement does not preclude the petrol stations from ceasing to accept their cards.

People, VISA made their mark with CREDIT cards, guess what... most EVERYONE uses DEBIT cards now. Last time I checked, well, they were CHECK cards, paid from a checking account. Visa lost their lawsuit to Discover, because they shut them out of the Bank's, thus the issuing marketplace for for DEBIT cards. Visa has their antitrust lawsuit to the retailers, led by WalMart. They don't have a strong litigational track record. I'm extremely disgruntled with Visa's logic that a more secure biometric transaction, like the one's processed by Pay By Touch, is classified as a "card not present" transaction. I believe Visa is making really bad decisions, one's that have monopolistic stench, which will come back and bite them in the ass.

The reason e-commerce has such an alluring appeal for PIN DEBIT, is because Visa is charging CREDIT CARD NOT PRESENT/MOTO type rates...and making a killing. But I'll save that for a future ATM Direct/TrueMe post.

Visa's first non-litigation standoff is a MATCH up against "petrol" companies, i.e. they're playing with fire. Play with matches and you're going to get burned.

Back to the story....

Spokespersons for some of the major banks in Dubai were unavailable for comment yesterday whilst some banks remained closed.

Officials from petrol companies were also unavailable.

Editor's Note: Nobody's talking, and Visa is removing the POS machines. Let me guess, it must've been that brilliant Visa PR person who made that decision.

Happy Days are "not" here again as basically the United Arab Emirate's are telling Visa to "Sit on It".

Based on the picture I'm seeing (look to the left) it certainly seems to me that a City in Dubai could turn into a major pain in the ass for Visa.

Touche'...Can you say "full circle"? Experience dictates that "deer" ole' Visa, was warned: "This is my backyard!"