Saturday, June 09, 2007

NETS Response to CASE Statements

The decisions by NETS to raise fees has drawn much condemnation from consumers, retailers and CASE and it has forced NETS to come up with some response to the uproar.

However, if we look carefully at NETS' response, it is nothing more than a public relations exercise and that the fee increase is most likely going to proceed as announced.

While thanking the various parties in coming forth to express their views, NETS is only stating that it remains open to hearing these views and feedback. However, it appears that NETS has not really heard the feedback clearly. Despite the complaints about the fee increase by consumers and merchants, NETS is saying that the change is necessary to help it stay relevant to merchants, card issuers and consumers... Merchants are already explicitly stating that they will abandon NETS payments and advise consumers to pay cash instead, consumers have already voiced much displeasure and concern that fee increases will add to inflation.

NETS justifies the fee increase as that it has to adapt to the business model of international card schemes where interchange fees are levied as part of the total transaction in order to continue being in business. With raising fees and pauing such interchange fees to card issuers, card issuers may not find it attractive to issue NETS-enabled cards in the future.

The truth is that NETS has conveniently left out the facts that the major NETS enabled card issuers, DBS, OCBC and UOB, are also the owners of NETS itself. DBS, OCBC and UOB are the major shareholders behind NETS! NETS Board & Management

One frequently used approach to such fare increases is to stagger the increases over a few years. NETS states that "staggering the fee change over a few years may be easier for merchants to bear, but the lower fees that result will make it harder for NETS to remain attractive to the card issuers.". This statement can more directly be read as the lower fees being charged will delay the profits that are made available to the card issuers.

The best question in the NETS' FAQ is "Why wouldn’t the card issuers support NETS? They are after all NETS’ shareholders". While the answer had been nicely phrased, in very simple terms, what it is actually saying is that the card issuers want to squeeze more revenue out of NETS.

While NETS' purpose in raising the fees is to ensure that it continues to survive in the future. It is more likely that it is closing the fees gap with international debit and credit cards. What difference will there be between using NETS, debit or credit cards? The ones who eventually suffer are those who do not qualify for debit or credit cards and have no choice but to rely on NETS for payment.

Demand and supply in economics theory states that higher prices will bring about lower demand. Furthermore, there has been increases in the supply of competing payment modes. Is NETS starting to price itself out of the market? It is highly likely in the years to come, NETS will cease to exist as it loses its competitive and relevance as a low cost payment medium for a cashless society.

Are consumers truly not going to be affected by the NETS fee increase? Let's not be too gullible and believe that that is true. Regular patrons to Sim Lim Square already know that shops charge different prices for cash versus credit card payments. While merchants are not allowed to pass on the transaction fee, it is not difficult to increase prices under the pretext of some other reasons to cover the increased transaction fees.

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