The MPC has just released a study (click here to view) of how European countries, Canada and New Zealand handle interchange fees. Merchants in those countries generally pay lower interchange fees. The study found that if American merchants paid the same swipe fees as those in Australia the past four years, the net savings would total $125 billion.
"It's the No. 2 cost, behind labor, in our industry, and it's nonnegotiable," Lyle Beckwith, a senior vice president with the National Association of Convenience Stores (NACS), told The Washington Post. "And as more and more people are using plastic for payment, it's getting increasingly problematic for our industry."
The Merchants Payments Coalitionmade up of retailers, supermarkets, convenience stores and other businessessaid U.S. banks charge about 2% of every transaction when a customer uses a credit card, reported Reuters. That interchange fee compares with 0.30% in the European Union and 0.50% in Australia, the group said.
But the Electronic Payments Coalition (EPC), which represents payment card networks and financial services companies, said interchange fees in the United States average 1.6% and are lower than in countries such as Italy, Switzerland, Japan. The EPC opposes the legislation.
The new report released by the MPC said American consumers and businesses pay far higher credit-card swipe fees than counterparts in other countries in the industrialized world. Hank Armour, president and CEO of NACS, said Americans pay swipe fees rates are more than double those in the U.K. and New Zealand, four times those in Australia, and more than six times those in cross-border rates in the European Union.
"As a result, American households pay about $427 a year in hidden swipe fees," Armour said. He added that while other countries around the world have taken steps to rein in unfair hidden fees, American businesses and their customers paid $48 billion in swipe fees in 2008 alone, which is triple the amount since 2001.
"Their sleight of hand would make Houdini proud," Doug Kantor of the MPC said.
Kantor pointed to New Zealand as one country that has taken action. He said they prohibit the banks from charging the same fees as each other so that they have some competition, and they allow consumers to get information about those fees and for merchants to give customers discounts when they pay through cheaper means.
Mallory Duncan, senior vice president of the National Retail Federation (NRF), said computing power has driven down costs dramatically and the cost of processing has dropped as well. "Nevertheless, swipe fees continue to climb. Over the last decade, they've continued to risen an average 16% per year. Even health care has not been climbing at 16% compounded annual growth rate," Duncan said.
Kantor said VISA and Mastercard control 85% of the market. Both also have what is called market power, which means they can control the market from a price perspective and offer zero ability to negotiate with them.
Merchants and some lawmakers complain that U.S. retailers have been blocked from negotiating a fee structure with credit-card networks Visa Inc. and MasterCard Inc., whose members are banks. Visa and MasterCard set the fee structure and control almost three-fourths of the volume of transactions on general-purpose cards, but banks charge the fees.
Critics say such fees end up being passed on to consumers, and any limit on fees would benefit cardholders.
But MasterCard and the EPC said that in Australia, where interchange fees were limited a few years ago, consumers did not benefit and credit card fees rose. "Consumers are well aware that legislation is a Trojan horse that likely will lead to higher prices for cardholders while retailers pocket the savings," Bill Sheedy, group president of the Americas for Visa, said in a statement.
Under bills pending in the U.S. Congress, merchants would have greater access to negotiations with banks to establish fees. Visa and MasterCard say merchants and retailers do have an opportunity to negotiate lower fees.
U.S. interchange fees rose to $48 billion last year from $42 billion in 2007 and were up 33% from 2006, according to Reuters.
The merchants want the right to band together to negotiate the fees with the banks, which they say they are currently not able to do. One bill before Congress, introduced by House Judiciary Committee Chairman John Conyers Jr. (D-Mich.), would allow merchants to enter into collective bargaining agreements with banks when setting fees. Senator Richard Durbin (D-Ill.) has introduced a similar companion bill.
A third bill, by Representative Peter Welch (D-Vt.), would make it easier for merchants to steer customers to other forms of payments and let them set minimum and maximum amounts for credit card purchases.
Industry representatives say the merchants do have the ability to negotiate but that most choose to go with a default nonnegotiable rate. They also point to other studies showing that lowering interchange fees in Australia forced card issuers to raise other fees and scale back on rewards programs, said the report.
They say the merchants are trying to get for free services that allow them to accept credit cards, which is the preferred mode of payment for many consumers. Among the services the interchange fees cover are guaranteed payment to the merchant, risk management protection and better record-keeping.
"Retailers in particular benefit from the value electronic payments deliver," Denise Dunckel, a spokesperson for Visa, told the newspaper. "Unfortunately some retailers don't want to pay for the benefits of electronic payments and instead have joined their large trade associations and are backing legislation that will significantly and negatively impact consumers, especially those struggling in this time of economic uncertainty."
Even if the merchants do gain the ability to negotiate lower fees, there is no guarantee that consumers will benefit, the banks said. "The merchants appreciate that benefit, but some of them, the more vocal ones, don't want to pay for it. Who's going to pay? The customers," Trish Wexler, a spokesperson for the EPC, told the paper.
The opposition is hitting back hard. The EPC has issued a press release stating, "Key evidence from several sources [demonstrates] conclusively that consumers would be hurt by interchange regulation in the form of higher fees, fewer benefits and zero savings at the cash register. Despite the misleading claims of giant retailers who want to shift this cost, merchants themselves have confirmed that they would not pass savings on to their customers."
It added, "Representatives of the U.S. government, international economic experts, the Reserve Bank of Australia and merchants themselves have acknowledged that consumers would see no savings from any interchange regulation. It's simple: merchants don't want to pay their fair share, and they want consumers to foot the bill. And that's not fair." (Click here to view the full release)
Visa also issued a statement. It said, "Consumers believe retailers benefit far more from accepting credit and debit cards than they pay in costs, according to a new survey released...by Visa Inc. The survey also finds that consumers believe merchants see card cost acceptance as a part of doing business, much like paying for utilities such as electricity.Among the survey's findings: By a 2-to-1 margin, consumers say retailers should pay the cost of accepting credit and debit cards. 78% of consumers believe the value and benefits retailers receive from accepting credit and debit cards outweigh the costs of accepting them. 83% of those surveyed believe that any savings retailers realize will be used to increase their own bottom lines and will not be passed on to consumers. 91% of consumers say they are more likely to shop at stores that accept credit and debit cards. The research shows consumers understand that retailers benefit greatly from electronic payments whether it is through guaranteed payment, increased security, acceptance, innovation or even store-brand cards that help build customer loyalty, Visa claimed. (Click here to view the full release.)
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