Create Jobs By Ending The Great Swipe Fee Rip-Off

Below is an oped by Doug Kantor, counsel for the Merchants Payments Coalition, that RealClearPolitics.com recently published. You can find it here.

Even though the monthly jobs report went unreported due to the government shutdown, recent ones from the U.S. Department of Labor have been sending a clear message: If we want to quicken the pace of the economy recovery we must do more than what we are doing.

A recent study found that over 154,000 jobs could be created annually if debit card swipe fees were limited to 12 cents a transaction (as originally proposed by the Federal Reserve) and credit card swipe fees were limited to 24 cents -- amounts that still allow credit card companies and the banks that issue the cards to realize a healthy profit, given the low cost to process card transactions.

Banks make money on debit cards even without swipe fees because it’s the cheapest way for the banks to give customers access to their money. But banks are charging anywhere from two to four percent of the total bill for credit cards and 24 cents a swipe for debit cards. That amounted to about $50 billion for the banks in 2012 or over $400 for every American family.

Visa and MasterCard have a virtual lock on the marketplace, controlling 80 percent of all card transactions. They set the fees the banks charge so that the banks don’t compete on price. That has made swipe fees the fastest-growing expense that merchants face.

Noted economist Dr. Robert J. Shapiro recently demonstrated the benefits of reforms.

Shapiro’s comprehensive study showed that the reduction in debit swipe fees under the Federal Reserve’s regulation generated almost $6 billion in lower prices for consumers and $2.6 billion in merchant savings in 2012 and those savings supported 37,501 new jobs.

Shapiro went on to demonstrate ways in which swipe fees continue to hamper overall economic growth and harm small businesses across the country.  He found:

- Savings and job gains would have been substantially larger if debit swipe fees had been cut to 12 cents as originally recommended by the Federal Reserve Board. If that cut had been implemented, an additional $2.79 billion would have been generated in consumer savings, $1.2 billion more in merchant savings and an additional 17,824 jobs would have been created.

- If swipe fees for all credit card transactions had been held to the same level as debit fees in 2012, consumers would have saved an additional $15.4 billion and merchants would have saved another $6.9 billion, which could have supported 98,600 additional jobs per year.

- With both debit and credit reform fully in place, consumers and merchants could have realized total annual savings of $34.9 billion, supporting a total of 153,976 additional jobs every year.

Federal regulators, the White House and Congress should be looking for ways to spur the economy, create jobs, and lighten the burden on small businesses. Swipe fee reform has already shown more success doing that and what’s been done to date is just a small taste of what should happen. With transparent and competitively set fees, the gains would be much greater.

Doug Kantor, Counsel, Merchants Payments Coalition