"Debit-card fees for a high-volume user like Couche-Tard are around 1% of the transaction value in the United States. Based on a 35% debit-card use rate at the pump, we estimate that Couche-Tard pays approximately $50 million in U.S. debit-card swipe fees annually," Van Aelst wrote. "We estimate that imposing a [image-nocss] cap of [12 cents per] transaction would result in reduced costs of $27 million."
The estimate comes on the heels of the Federal Reserve proposing new rules that could cut those fees as much as 90%, as previously reported in CSP Daily News.
The Fed has proposed, at the behest of a Congressional order to examine whether merchants were being charged excessive fees to process debit-card transactions, limiting interchange fees from 7 cents to 12 cents per transaction, or approximately 0.3% of the face value of a purchase. Merchants now pay debit-card processing fees averaging about 1.3%. Smaller retailers are charged more because of lower transaction volume and limited bargaining power.
The Fed also proposed that it re-evaluate the fee cap every two years and asked for more time to consider whether it should be increased to reflect the costs of fraud protection.
The Fed is now accepting comments on the proposal through Tuesday, February 22, 2011. A final rate structure is expected to go into effect on July 21, 2011. (Click here to read previous coverage of the proposal.)
Van Aelst, meanwhile, was hesitant to suggest Couche-Tard will begin pocketing that $27 million if and when the new rates become law.
"Management's stated intention was to pass the savings on to consumersalthough, if need be, it would give the company a little bit of a buffer to absorb any rising input costs without having to raise prices," the analyst wrote. "So while these regulations may not drive earnings higher immediately, one certain benefit would be improved earnings stability. Specifically, in periods when fuel prices are on the rise, the cap would limit the increases in electronic payment fees, leading to more stable net fuel margins."
He added, "Of course, the industry will remain exposed to this risk on the other half of electronic transactions (representing an estimated two-thirds of all interchange fees paid by Couche-Tard) that are made on credit cards...unless credit-card fees are also capped at some time in the future."
Couche-Tard, headquartered in Laval, Quebec, operates a network of 5,904 convenience stores, 4,178 of which include motor-fuel dispensing. The stores are operated by 12 business units, including nine in the United States covering 42 states and the District of Columbia--most under the Circle K banner--and three in Canada covering all 10 provinces.
(Click here for previous CSP Daily News coverage of interchange fees.)
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