Study: U.S. Pays More for Interchange Fees

More on the Merchant Payments Coalition and their New Study... A new study by the Merchants Payments Coalition finds that Americans pay a much higher percentage for interchange charges than the rest of the industrialized world.

WASHINGTON, DC – A new study by the Merchants Payments Coalition (MPC) www.unfaircreditcardfees.com found that if U.S. consumers paid the same low credit and debit card swipe fees as consumers in Australia pay, then the net benefit would have totaled $125 billion over the last four years. Interchange fees, or “swipe fees,” cost Americans an average of $2 on every $100 they spend with credit cards — a higher percentage than anywhere else in the industrialized world. Why? Because other countries and their governments have been able to negotiate with the big banks and credit card companies for fair rates and transparency, the MPC notes. NACS is one of the founding members of the MPC. But, in the United States merchants and their customers are still forced to pay sky-high interchange fees. Interchange fees started out in the 1960s as a way for banks to cover the cost of processing credit card transactions. But even as technology has dropped that cost dramatically, the banks and credit card companies have pushed swipe fees higher and higher, turning it into a cash cow. For many businesses, credit card fees are now their single-highest non-labor operating cost. With almost any other equipment, supplier or service, retailers can comparison-shop, negotiate or otherwise influence its final cost of doing business. Store owners can conserve on energy usage and seek out the most competitive prices for merchandise, just to cite a few examples. Not so with credit card interchange fees. Visa and MasterCard control more than 80 percent of the marketplace. They set the fees in secret, give businesses no ability to negotiate and virtually insist they be buried in the price of merchandise. Unfortunately, the card companies’ hidden fees get passed on to all consumers in the form of higher prices and lower value for nearly everything they buy. “It’s bad enough that the credit card companies force these hidden fees on us and our customers when we can least afford it,” noted NACS Vice Chairman of Government Relations Tom Robinson, president of Robinson Oil Corporation. “But when we are paying more than anywhere else in the world, and other countries have taken action to protect their citizens from abuse, it is inconceivable that our government would turn a blind eye to the issue. It is time for Congress to step up and defend the principles of the free-market economy by taking action on (interchange) fees.” Though Congress and the White House have addressed other credit card reforms, the MPC is arguing that any fix will be incomplete without addressing interchange fees. Consider: Banks raked in an estimated $48 billion in interchange fees in 2008 – an average of $427 per American household in just one year. This $48 billion total is more than triple the amount collected as recently as in 2001. Hidden interchange fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined. U.S. interchange fees are the highest in the developed world. The U.S. pays approximately 60 percent of interchange fees globally – about double the U.S. percentage share of global GDP. Compared to the rest of the world, U.S. interchange fees are more than two times the rates in the U.K. and New Zealand, four times the rates in Australia and more than six times the cross-border rates recently agreed upon by MasterCard and the European Union. Meanwhile, the payments industry hit back with its own “study.” In a September 17 press release, Visa announced the findings of a new study that shows that “consumers believe retailers benefit far more from accepting credit and debit cards than they pay in costs. The press release noted 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 percent of consumers believe the value and benefits retailers receive from accepting credit and debit cards outweigh the costs of accepting them. 83 percent 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 percent of consumers say they are more likely to shop at stores that accept credit and debit cards. “Retailers and their well-funded trade associations have filed lawsuits and are aggressively lobbying Congress to allow them to shift their business costs to consumers by allowing merchants to charge checkout fees whenever consumers use credit or debit cards. At the same time, national convenience store chains have launched misleading, in-store petition campaigns to cover for their checkout fee efforts, noted Visa’s press release. "The response is loud and clear: consumers aren't buying the message convenience store chains and big retailers are selling," said Bill Sheedy, group president of the Americas for Visa Inc., in the release. "This research demonstrates that consumers are well aware that legislation is a Trojan horse that likely will lead to higher prices for cardholders while retailers pocket the savings."

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