Monday, April 7, 2014

Europe Leads by Example in Fight Against Credit-Card Bullies

We Americans are justly proud of our free market economy, and yet it is the European Union that is taking the lead in breaking the grip of two big credit-card companies on the market and protecting consumers from abusive and unfair card payment fees.

Last week European lawmakers voted to impose lower caps on the “swipe” fees merchants pay every time a customer buys with a credit or debit card. The limit of 0.3% for credit and 0.2% for debit purchases will save businesses billions of dollars and allow merchants to pass the savings onto their customers.

Meanwhile, U.S. consumers pay the highest fees in the world. Up to $4 on every $100 charged to a card goes to banks. Swipe fees are so high because they are set in secret by Visa and MasterCard, which control 80% of the card business, leaving no room for negotiation.


Uncompetitive and unjustly high rates hinder our economy. Will the U.S learn from Europe's example and stand up against the bullies who are pocketing what could be consumers’ savings one swipe at a time on everything they buy with a card?

Tuesday, March 25, 2014

Step Towards Transparency: Fee Warning Labels on Cards

In an attempt to regulate the pre-paid debit card market, lawmakers have proposed putting disclosure labels on the cards. They would highlight most common fees and warn consumers against some potential additional charges.  

Pre-paid debit cards are a very convenient and popular method of payment for many, but they are loaded with fees. Just like swipe fees, those surcharges are pretty much hidden from the card users. Neither banks nor credit card companies go out of their way to inform clients about swipe or transaction fees, overdraft, ATM, replacement, maintenance and a long list of other charges that can cost you as much as $360 a year. So maybe lawmakers should be thinking about warning labels for all cards, not just pre-paid.  

We can't argue with the point that warning labels alone wouldn't fix the issue of inflated card fees. Consumer Program Director at the U.S. Public Interest Research Group Ed Mierzwinski says:
 “If they’re not going to ban bad fees, will the disclosure require a skull and crossbones next to an overdraft fee? If you’re not banning the worst fees, it doesn’t do much good to tell consumers only about some fees but not all the fees.”   
Disclosure labels might not be a perfect solution but they would sure be a huge step towards transparency that electronic payments system lacks right now.

Monday, March 24, 2014

Banks Make Big Money as Consumers Swipe Cards More Freely

The card business for the country’s biggest banks is booming again according to a new analysis by Trefis.com. While their bottom lines have been improving since mid-2013 thanks to card loan portfolios, an uptick in the frequency with which customers are swiping both their debit and credit cards has significantly boosted the banks profit margins.

Given the fact that banks can charge a merchant anywhere from two to four percent of the purchase cost for every transaction, even though it really only costs them mere pennies to process the sale, they continue to make big money with each swipe.

The analysis summarizes the purchase volumes for Bank of America, JP Morgan Chase, Citigroup and Capital One.

(in $ bil)
FY’11
FY’12
FY’13
Bank of America
442.9
451.9
473.0
JPMorgan Chase
343.7
381.1
419.5
Citigroup
356.2
358.4
364.6
Capital One
135.1
180.6
201.1

These results include debit and credit card activity. Bank of America has a higher purchase volume in large part because there is a much higher usage of their debit cards in comparison to its competitors. So, even in the face of debit reform legislation, which placed a cap on the swipe fee, the overall increase in card usage has only further buttressed the swipe fee as a profitable revenue stream for banks.

The analysis predicts a five to six percent annual increase in purchase volumes for these banks over the next several years even higher if the economy recovers sooner than anticipated.

Customers swiping more freely may be good news for the banks but as merchants and consumers are gouged with each of those swipes, it doesn’t bode well for the future of our bottom lines.

Wednesday, February 26, 2014

European Retailers Score Big Victory in Swipe Fee Battle

The E.U. continues to set the pace for swipe fee reform as the economic and monetary affairs committee of the European Parliament voted last week to cap the fees at 0.2% and 0.3% for debit cards and credit cards respectively.  The new legislation, which applies to domestic and cross-border payments, was a response to the ongoing impact of the fees on both merchants and consumers as well as the lack of transparency in how such fees are set.

Right now, the average swipe fee ranges from 0.2 percent in Denmark and the Netherlands, to more than one percent in Germany, Hungary and Poland.  The reform measures aims to standardize the governing rules between countries.

The European Commission states that the reduced fees could end up saving retailers six billion euros a year, a savings that could lead to lower consumer prices.

Despite the significant progress being made in Europe, the cost for U.S. consumers to swipe their cards remains exorbitant.  In fact, the fees, which can be as much as four percent of the total cost of the purchase, are eight times higher here than in Europe and other countries.

So, the question remains: what gives?  It’s time for our federal officials to follow the E.U.’s lead.

For more about the European Parliament’s recent vote, see here and here and here.

Image source: The Travelers Blog

Wednesday, February 19, 2014

The Banking Industry’s Meal Ticket

In her recent article Credit Card Gravy Train Is Crushing Consumers, Ellen Brown provides an excellent analysis of the banking industry’s profitable swipe fee scam and the burdensome cost to both merchants and consumers.

Most consumers don’t realize that every time they use their credit card, the retailer is charged an interchange or swipe of about two percent of the total purchase. Banks are able to charge this rate because Visa and MasterCard, the two biggest credit card companies, set the fees essentially in secret and then dictate the terms to merchants, who are left with no choice but to accept them if they want to stay in business. As Brown explains, two percent:
“…may not sound like much. But consider that for balances that are paid off monthly (meaning most of them), the banks make 2% or more on a loan averaging only about 25 days (depending on when in the month the charge was made and when in the grace period it was paid). Two percent interest for 25 days works out to a 33.5% return annually, and that figure may be conservative.”
In other words, the swipe fee results in big profits for the banks but puts a big squeeze on the rest of us from the merchants who are forced to absorb the fees to the consumers who are left paying higher prices to cover that cost.
Interestingly, Brown compares this fee to a private sales tax.
“A 2% merchants’ fee is the financial equivalent of a 2% sales tax—one that now adds up to over $30 billion annually in the US. The effect on trade is worse than either a public sales tax or a financial transaction tax, since these taxes are designed to be spent back into the economy on services and infrastructure. A private merchant’s tax simply removes purchasing power from the economy.”
It’s a sneaky game the banks are playing and it leaves merchants and consumers holding the bag while sapping an already vulnerable economy of the energy it needs.

(photo source: Ripoff Report)

Monday, February 17, 2014

A Unified Front: Retailers and Banks Join Forces Against Cyber Threats

As the fallout from the massive data breaches suffered by Target and others continues to play out, retailers and banks decided last week that it was time to band together to fight the ongoing cyber threats. Fifteen trade groups including the Retail Industry Leaders Association, the American Bankers Association and the National Restaurant Association put together a working group that will, among other issues, examine the latest payment technologies to identify which would have the greatest chance of thwarting future breaches and determine opportunities for potential action from Congress.

In a recent article in The Hill, Tim Pawlenty, chief executive of the Financial Services Roundtable and former Minnesota governor, described the current situation and unlikely union:
“…you can’t really make it better or improve it unless you look at it comprehensively. That involves a whole series of stakeholders, and we need to work together constructively to improve it. And this partnership is designed to try to bring people together to focus on the things we can agree on.”
The article points to one possible starting point for consensus and that is with the way in which companies notify customers of a data breach. Currently, dozens of states have varying laws that run the gamut but there is no uniform standard defining the protocol companies should follow. With so many cooks in the proverbial kitchen, the rollout of such notification is often disorganized and ineffective.

To read The Hill’s article, Stores, Banks Team Up to Fight Hackers, see here.

Tuesday, February 11, 2014

Baseball Takes a Swing at Excessive Swipe Fees

The high cost of credit card swipe fees is getting more attention these days and it’s not just from Main Street retailers. America’s favorite pastime, baseball, has now stepped up to the plate and joined the fight against these skyrocketing fees as the Minnesota Twins just levied an antitrust suit against Visa and MasterCard, accusing them of price-fixing swipe fees and monopolizing the marketplace.

Make no mistake about it, this insidious fee impacts businesses of all shapes and sizes. Any purchase paid for by plastic is subject to a swipe fee of two to four percent of the price of the transaction whether you are buying a ticket to a baseball game or picking up a gallon of milk from the corner grocer.

Take, for instance, the cost of a Super Bowl ticket from earlier this month. The face value of tickets ranged anywhere from $500 to $2,600. Two percent of $2,600 is $50. If that ticket is sold at the average $4,300 resale price through a ticket dealer, the bank will take in another $86. That’s nearly $150 in swipe fees on a single ticket and with 83,300 seats in the MetLife Stadium, the banks and credit card companies brought in millions of dollars for transactions that could have been done profitably for mere pennies. Given this, it’s no small wonder that families in the United States pay an estimated average of almost $500 a year in swipe fees.

For more on the Minnesota Twins’ lawsuit against Visa and MasterCard, see here.