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Card swipe charges could see major cuts

It’s hasn’t received much publicity to date, but the high swipe fees being charged retailers for swiping customers’ debit cards may be headed for a major slashing. In fact, the Federal Reserve in December proposed big cuts, up to 90 percent!

It comes about because of the Dodd-Frank financial reform bill passed last year. In it, Congress directed the central bank, which oversees the regulation of electronic payments, to ensure that the swipe fees charged by the banks and payment card networks like Visa and MasterCard were “reasonable and proportional” to the cost of processing the transaction.

Recently, the Fed proposed limiting those so-called interchange fees from 7 cents to 12 cents per transaction, or roughly 0.3 percent of the face value of a purchase. Retailers now pay debit card processing fees averaging about 1.3 percent. Smaller retailers are charged more, up to 2 percent, because of lower transaction volume and limited bargaining power.

According to veteran business writer, Carol Tice reporting in Entrepreneur.com Daily Dose, rather than the current debit-swipe system, in which card companies can charge up to 2 percent of the purchase price, the Fed says debit-card swipe fees should be capped at 12 cents per transaction. Period!

“That’s a big difference. For instance; a retailer would pay just 12 cents on a $100 purchase, instead of the current fee of around $1.50,” Trice wrote.

The banks are opposed, of course, and expected to lobby hard for a reprieve. MasterCard, for example, criticized the proposal by saying it would simply shift costs to consumers from merchants. “This type of price control is misguided and anticompetitive and in the end is harmful to consumers,” Noah J. Hanft, MasterCard’s general counsel, said in a written statement.

Good, but it doesn’t go far enough, says the National Retail Federation. It will press for zero fees. The group reasons that debit cards are simply plastic checks and paper checks aren’t charged a fee. While conceding the NRF has a point, Tice doubts zero fees can happen. After all, banks and credit card providers need something to cover administration costs of the debit card program. There’s usually a fee paid to order those paper checks while debit cards are issued free by the banks.

In addition, the Dodd-Frank bill also sets up Visa, MasterCard and others to compete more aggressively for retailers’ business by requiring that all debit cards run on the networks of at least two different payment companies. So when a customer uses a Visa debit card, for example, the merchant could process the transaction on a network other than VisaNet. The difference is that, today, through exclusivity agreements, many debit cards run on the network of only one payment company. This change, still up for review by the Fed, will take effect in July.

All together, these measures in Dodd-Frank along with the current proposal by the Fed should give retailers a much stronger hand to negotiate lower prices with the banks. Knocking off dollars here and dollars there paid in fees will put more on every retailer’s bottom line.

The Federal Reserve is taking comments until Feb. 22, 2011. A decision will likely come around June. If you want to comment supporting the Fed’s proposal you can do so at: www.federalreserve.gov, click the News & Events tab, then Regulatory Reform.

Comments

4 comments on “Card swipe charges could see major cuts

  1. Fed Up with Fees

    Kudos for providing this information and the website info! I’ve already submitted comments on behalf of our store, and I urge others to do the same.

    Our card acceptance has soared from 25% to 60% over the last few years, with people wanting to pay with a card for a $1.49 pack of bulbs. They no longer carry cash because using cards is more convenient… Convenience has its price, but we should not be the ones paying that price. Many banks offer free checks, but yet they insist they have to cover costs to process cards…? If they’re not paying for check printing, they no longer have that expense. I would think electronically processing cards costs less than printing & processing checks. And if a bank does charge customers for checks, they can charge the customer to use the card instead. After all, it’s the customer who is benefitting from the convenience of using a card for everything.

    BTW, if anyone suggests set a minimum for card purchases, yes, I’ve seen those signs. But MC & Visa have told us that’s a big no-no, and they can cancel our contract. They say it’s discriminating against their cardholders.

    In the long run, when those accepting cards pay fees that cut into profits, prices increase to make up for it. I don’t use a card for purchases under $25, because I can empathize with those accepting my card. But most card users don’t know, or don’t think about those hidden costs. We even have customers who think we RECEIVE a fee for accepting cards! It’s common for people to think the that card issuers only make their money on finance charges and late fees.

    It’s time the banks realize they can’t pass on every expense so they can keep paying ridiculous bonuses to those who don’t deserve them. I’m sure they can make a decent profit without gouging those of us who accept their cards. Where would they be without us?

    Wouldn’t it be great if everyone could refuse to accept cards for just one day? What kind of statement would that make to the card issuers?

  2. Artios

    Gentlemen,

    I hate government regulations. That said, I hate my credit card processing bill each month even more.

    I run a small business in an ever demanding market with minimal mark ups. I look at the fees I’m paying and say to myself, ” Someone is going to really enjoy themselves on vacation this year”. As a small business, I am tired of paying these extortion fees for credit card processing so that my customers can enjoy themselves by earning “points”, at my expense.

    I’ve read over some of the other comments at the Federal Resrve website about Target and Wal Mart are the only ones that are behind this. Hold on people, do you realize how small their margins are? When I accept a 1K payment, it can cost me over $35 of processing fees!. I know, it’s my decision to accept credit cards, but please explain to me why I should be participating in someones next vacation by accepting their plastic as payment.

    Let’s see, I can take a check for 1K to the bank and it costs me nothing for processing. The bank has to pay a teller to input my check and print me out a receipt. Or I can accept a credit card, basically the same payment as a check but safer for the bank, that costs them pennies to process and I pay over $35. Anyone see what’s wrong with this picture?

    .12 per transaction fees? BRING IT!!!

  3. Tom

    Banks say “it would simply shift costs to consumers from merchants” I say “it already has” I have had to raise my prices across the board to cover the ever increasing number of credit card transactions. So its already cost the consumer and rightfully so. They are the ones asking for credit. The banks are trying to get even fatter on the merchants dime with bonus cards, rebates etc. yet the end result is they are impacting all consumers by driving the price of all goods and services higher and higher. How many swipes does it take to sponsor a football stadium. When will it end? Only when the government regulates the amount of profit the banks can make and the salaries of those who are running them. So far it aint happening! There gonna just keep pushing the problem around instead of truly solving it.

  4. Take NO Credit Cards...

    Years ago, I started taking CC’s until they came along and told me there would be a monthly ‘fee’ to be able to take them. I couldn’t see spending an extra $50 per month to ‘rent’ the equipment to be able to take them – and I still can’t. Every once in a while someone calls and says they have a ‘Credit Card Deal’ where they don’t charge the monthly fees, but I have found out they still charge the same amount – it’s just named something different! The salesman usually isn’t too pleased with me when I boot him and his CC information out the door! I must say, I haven’t lost too many customers because of it. They now know when I do work for them – it is check, or cash. I also don’t have any problem explaining to the customer WHY I don’t take cards. Usually they have no clue. I don’t have a lot of problem with the fees they charge to process the transactions – but I refuse to pay for the equipment to make money for someone else! If circumstances change – I will to… but until then – bring on the CASH!
    Taking NO CC’s in Iowa!

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