ARLINGTON, Va. -- The announcement last week that the European Commission had abolished MasterCard credit- and debit-card interchange fees undoubtedly will make American retailers envious of their European counterparts. And if all the stars align early next year, similar legislation could soon come to pass in the United States, according to Tim Hammonds, president and CEO of the Food Marketing Institute (FMI).
From our point of view, this is a very important ruling, Hammonds told CSP Daily News. It makes it clear that this is a global issue, not [image-nocss] just a U.S. fight between big retailers and big credit-card companies. It is very much a joint industry-association effort worldwide. The consumers are paying the bill on this because businesses have to pass along these costs long term.
The EC ruling stated that multilateral interchange-fee agreements, such as MasterCard's, inflate the cost of card acceptance by retailers. Consumers, it said, were paying for the fees twice: once through annual fees to their bank, and a second time through overblown retail prices paid by all customers, not just those using plastic. Furthermore, the ruling said fees would be acceptable only in instances where they are clearly fostering innovation to the benefit of all users.
MasterCard's European fees range from 0.4% to 1.2% per transaction, considerably less than the rate in the United States, which averages 2.14%. Furthermore, Visa will have to stop charging interchange fees on these payments on Dec. 31, 2007, according to the EC. Visa Europe's interchange rate is currently 0.7%.
Across the Atlantic, the U.S. interchange battle is being fought on multiple fronts. Congress has held several hearings on interchange-fee issues, and the U.S. Justice Department has said it is investigating antitrust issues related to interchange. At the same time, merchants are pursuing more than 50 lawsuits against credit-card companies and banks, alleging antitrust breaches.
Hammonds, whose association represents more than three-quarters of America's 30,000 supermarkets, contends that legislation has the greatest potential to alter U.S. interchange fees by as early as next year. And the EC ruling, he suggested, has the potential to spur along any changes to U.S. policy.
We believe there's a very real chance to see something early in 2008, Hammonds said. We're hoping that in the U.S. we'll basically find what the Europeans found, that it is an antitrust issue. Lawsuits, as important as they are, they tend to be backward looking; They're not designed to put in a new system to change behavior in the future. We believe the legislative remedies will be accomplished much faster than the lawsuit resolutions.
When CSP magazine reported on U.S. interchange fees and their effects on convenience retailers in its September 2007 issue, Peter Madigan, executive director of the Electronic Payments Coalition, Washington, D.C., said, The benefits of electronic payments far outweigh the business costs. The important thing to remember is, like rent, electricity or telephone bills, there is a cost associated with using these services and maintaining a global electronic-payment system that offers significant benefit to both the customer and the retailer.
More than half of the supermarket industry's transaction volume comes from plastic. In urban areas, it's well more than half, said Hammonds. Convenience retailers, especially when the price per gallon surpasses the $3 mark, report plastic as the overwhelmingly dominant method of payment, thereby multiplying fees. In 2006, credit-card costs to the c-store industry totaled $6.6 billion, which was more than twice the amount paid out in 2003, according to Jeff Lenard, spokesperson for NACS, the Association for Convenience & Petroleum Retailing.
If the problem was identified in Europe and interchange rates are higher here and no one has explained sufficiently as to why, something needs to change, Lenard told CSP Daily News. Credit-card fees are and remain the No. 1 issue for our members and our industry. Any news that furthers our concerns and asks questions that need to be asked so that we can determine the problem and identify a solution is a step in the right direction.
Interchange fees have truly become a worldwide issue. On behalf of their retailer members, FMI, NACS and other industry organizations have been working with international retail association EuroCommerce, based in Brussels, Belgium, to reduce said fees. Several countriesAustralia, Israel, New Zealand, Poland, Spain and Switzerland among themhave dealt with interchange fees in ways that groups such as FMI suggest are fairer to consumers and retailers.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.