The Law That May Change the Way You Buy Games in the USA

When people hear about laws that could change how you buy games, they initially think about censorship.  This is not one of those laws.

Earlier this year, Senate Majority Whip Dick Durbin put in an amendment to the Dodd-Frank Wall Street reform act, which was passed into law.  This amendment has two effects that will impact purchasing games that work together. 

The first is that it removes the restriction on merchants (people and websites that sell games) from price-discrimination among payment methods.  The second is that it puts control of debit card overhead charges (that all of us merchants pay for each transaction) in control of the Federal Reserve.

Today, the Federal Reserve announced the price caps of debit cards, and some banks have already claimed that the low charge allowance could make banks lose money on debit card transactions (stocks have dropped today, lawsuits are already being filed, some claiming the end of debit cards, etc.).  This also has a ripple effect.  When these laws go into effect next year, debit cards will be very cheap for merchants.

Every time you make a purchase with a credit card, debit card, or other payment network (e.g., Paypal), the company you're buying something from has to pay a flat fee and a percentage of the transaction to the merchant services provider, either the company that issues the payment device or a middleman. 

Have you ever wondered why you had to buy credits for online games in bundles instead of microtransactions?  This is because the base rate is usually some fraction of a dollar, and the amount depends greatly on the arrangement.  If the merchant has to pay 30 cents on a 20 cent purchase, the merchant is not going to sell. 

Further, some payment methods are much more expensive than others.  Because of fees, Paypal, American Express, and some other reward cards cost so much that some merchants won't accept them.

Currently, all of these companies have agreements set up that prevent merchants from passing discounts or surcharges on to the customer.  This new law allows people who sell games to charge differently based on how you plan to pay.  Are you using card X?  Sure, we accept it, but it'll be an extra dollar.  Do you want to using online payment method Z?  We'll accept that as well, but for two extra dollars.  With the costs of debit cards artificially low, people will probably be more likely to use their debit cards to save money, and thus the credit card companies will need to drop their prices to stay competitive.

If these laws are here to stay, it could mean some interesting things for buying games.  Perhaps microtransactions will start to take off in the USA.  People making very small casual games might be able to charge even less for them; it could open a niche market for ultra-casual games or also an online pay-to-play version of the arcades of yore. 

Perhaps every game vendor will have a laundry list of prices based on how you pay.  Perhaps this will further the walled-garden trends we've been seeing with portability barriers, such as iPhone and Android, using different payment methods.  Or, perhaps nothing will change from the consumer perspective, but merchants will keep the prices the same and will get the profit where the banks/payment services companies are no longer making them.

At first glance, this law may seem good, in that it gives more information to consumers and, in theory, takes money from banks and put it in the hands of the customers.  However, by putting overly stringent price controls on debit card networks, it could do some serious damage as well.  Further, it'll be interesting to see how businesses and contracts evolve around these new laws. 

What constitutes a "payment card network"?  Obviously Visa is, but what about Paypal?  What about Apple's App Store, for which you can buy prepaid cards?  Apple's App Store is tremendously expensive for merchants when compared to credit cards, and is more for marketing and entering the market.  What about Valve's Steam?  The lines are fuzzy.