US Should Follow EU’s Lead in Swipe Fee Reform

The European Union is leading the way when it comes to reining in excessively inflated credit card “swipe” fees.  In a recent op-ed published in The Hill, Lyle Beckwith, senior vice president of Government Relations with the National Association of Convenience Stores, outlines how European Union regulators and Parliament is successfully transforming these fees and is in the process of securing protection for both their retail economies and consumers.
The U.S. needs to take a page out of their book.
 
For far too long, Visa and MasterCard have centrally fixed the fees that their banks charge, costing people worldwide billions of dollars.  By approving a 0.3-percent cap on the fees and a seven-Euro cents cap on debit card transactions, or 0.2 percent of the transaction value, whichever is lower, the E.U. locked in a rate that is a seventh of what U.S. retailers currently pay their banks.
 
Merchants and consumers in the U.S. pay the highest swipe fees in the world—up to 4 percent per transaction.  So, for every $100 worth of groceries, gasoline, or nights out on the town, merchants are forced to absorb another $4 despite the fact that it only costs the banks mere pennies to process the transaction.
 
Much to the banks’ chagrin, study after study continues to show how debit-card swipe reform here in the U.S. has given a much-needed boost to merchants and consumers.  In fact, noted economist Robert Shapiro estimates that consumers saved nearly $6 billion in the first year of reform and that those savings went on to support over 37,000 jobs.
 
Our counterparts in the EU, Australia and Canada are all finding ways to keep these escalating fees in check.  It’s time for us to follow their lead and pave a path that opens the way to a transparent and competitive market.

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?

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.

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.

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

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)

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.

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.

Chip and Pin: Not a Simple Quick Fix

In her article, 'Debit or Credit' Becomes A Point-of-Fail, Kelly Jackson Higgins discusses how recent data breaches have spurred retailers, lawmakers and the banking industry to seriously rethink security options for card payment systems. She includes the following third-party observation:

"Banks have gone out of their way to make us [consumers] feel comfortable. They're just charging the retailers for this, but it's going to hurt the retail industry," says Avivah Litan, distinguished analyst with Gartner. "Maybe banks will now move on chip and PIN" sooner, she says.

While it is true that retailers pay a disproportionate share of fraud costs and the reality of recent data breaches will goad banks and retailers both to make changes, we must be sure that they are the right kind of changes. The move to a computerized chip embedded in the card is not the complete solution to fraud in the United States.

First, merely adopting the chip cards without the requirement of PIN numbers, as the credit card companies had proposed, is a half-measure that will not make customer data and card transactions wholly secure. Yes, the chip is extremely difficult to counterfeit but without the second layer of cardholder authentication offered by the PIN, it does not solve for lost or stolen card fraud or Internet fraud.

Secondly, it’s important to note that the standard called EMV that the major card brands, Visa and MasterCard, are pushing for is actually their proprietary technology and opens the door for them to extend their already-powerful duopoly. Merchants are concerned that adopting EMV will allow the credit card companies to maintain their dominance in this technological arena and as a result prevent a competitive market from forming, perhaps one that moves beyond cards to customers using their mobile devices to make purchases.

No good can come from this kind of non-competitive market. We’ve seen proof of that with the credit-card companies’ exorbitant swipe fees. If the duopoly of MasterCard and Visa stymie competition in technology, too, in the long run it only ends up hurting both consumers and merchants.

Card Fraud More Common in United States than Europe

As more information about the recent rash of data thefts comes to light and additional breaches are discovered, it is becoming ever more apparent that the credit/debit payment system in the United States is broken. New statistics only bolster that reality.

Take for instance a recent Nilson Report, which showed that while the U.S. accounts for only 27% of the credit card transactions worldwide, it is in fact responsible for 47% of card fraud. Or a report from Aite Group and ACI Worldwide, which surveyed more than 5,000 consumers in 17 countries and found that the United States, along with Mexico, is more susceptible to fraud with 42% of respondents saying they have been victims of such fraud.

Why are these data breaches happening at a greater rate in the U.S. than say in Europe?

Simply put, it is because the United States continues to rely on an outdated magstripe payment card whose required signature authorization can be easily plagiarized and used to create a host of fraudulent cards. Most European countries, on the other hand, follow the EMV standard, which uses a microchip technology that offers consumers, merchants and banks much greater security.

But it will take several years for the EMV standard to be put into practice in the United States, as it requires banks to update their card systems. This promises to be a costly investment and banks no have motivation to make that investment because merchants bear the lion’s share of the consumer fraud costs.

In the meantime, American consumers remain sitting ducks as our credit and debit cards remain acutely vulnerable to criminals.

To read more about the Aite Group/ACI Worldwide survey, see the Forbes article here.

EU Court Adviser Puts MasterCard in Its Place

MasterCard is doing everything in its power to fight EU regulator’s 2007 decision to limit the fees European retailers pay for processing credit and debit card transactions. Fortunately, it seems like nobody believes MasterCard’s claim that capping interchange fees is not beneficial to merchants and consumers. Earlier this week an adviser to European Commission said MasterCard’s appeal should be completely dismissed.
 
European retailers stood up against credit card giants: Visa and MasterCard and have been fighting for a fair and competitive payments system. However, MasterCard doesn’t want to let go of huge interchange fee profits. Limiting swipe fees to 0.2 percent for debit and 0.3 percent for credit translates to €6 billion a year in savings for retailers and consumers in Europe.
 
Bloomberg quoted the CEO of Europe’s biggest home improvement retailers, Kingfisher Plc:

“Stimulating competition in the payment services market and ensuring fair interchange fees will create capital to enable a range of investments to be made.”

In U.S. transaction fee rates are even more overblown. They are 7 or 8 times higher! This reduces retailers profits significantly and forces them to either raise prices, which hurts consumers and limits their spending or prevents merchants from hiring new employees.
 
The EU court should make a decision within next 6 months and it usually agrees with the advisers’ opinions. In this case, the advice is spot-on.

Outdated System Guarantees More Data Breaches

As the extent of the Target data breach continues to trickle out and new revelations of similar violations at other major retailers come to light, one thing is crystal clear: the antiquated U.S. payment system is broken and needs a major upgrade.

Credit cards remain one of the most fraud prone payment options in our wallets today.  Why is this?  It’s essentially because there is no financial incentive for the banks to improve a system that relies on 40-year old technology.  Take for instance, the two largest credit card brands, Visa and MasterCard.  They control 80% of the marketplace and as a result get to call all the shots when it comes to how consumers’ account information is protected and who pays for the fraud.  Given that they pulled in $7.7 billion in combined after-tax profits in 2013 and rarely end up absorbing the losses from fraud, they are just not motivated to take on the costly expense to update the system.

It’s ironic that the United States lags so far behind the rest of the industrialized world given that we have long led the way when it comes to technological innovation.  Nevertheless, we are one of only a few developed countries that still rely on a magnetic stripe to hold all the pertinent financial information needed to make a purchase by credit or debit card.  This makes us a magnet for fraud.

Right now, the banks are content to sit back, enjoy their excessive profits and address the fraud after it has already happened.  But data breaches, both large and small, will continue to occur and consumers and merchants will continue to pay the price until the banks make the proper investment and take a more pro-active role in preventing the fraud from occurring in the first place.

For a detailed analysis, see David Dayen’s article, “Your Credit Card Has a Dangerous Flaw That the Banks Refuse to Fix,” in The New Republic here.

Swipe Fee Fight Goes On As Retailers Appeal Credit Card Settlement

The next chapter in the eight-year battle between the retail industry and Visa and MasterCard is set to unfold as the National Retail Federation (NRF) recently filed an appeal to the controversial antitrust lawsuit settlement covering credit card swipe fees.  At the heart of the appeal is the fact that the deal simply won’t prevent these fees from continuing to rise at exponential rates in the future.

In December, a federal judge approved the proposed $5.7 billion settlement between retailers and the credit card giants.  Merchants had brought the suit against Visa and MasterCard to fight the soaring cost of swipe fees, which drains $50 billion a year from the bottom line of retailers and consumers.  Given that the major credit card companies together control 80 percent of the market, they continue to set these fees in a manner that amounts to price-fixing.  Merchants, at no point, have ever been given an opportunity to negotiate these fees.

So, what is gained by the settlement?  From the merchants perspective, not very much.  Even with this settlement in place, the problems retailers face, which triggered the litigation to begin with, will remain.  The decision offers nothing in terms of reforming the system or curbing the escalating costs of the fees, which have tripled in the past decade alone.  In fact, the $5.7 billion settlement is a mere drop in the proverbial bucket for Visa and MasterCard as it represents less than three months of their swipe fee profits.

As Mallory Duncan, NRF’s Senior Vice President and General Counsel says,

“The only people pleased with this settlement are Visa and MasterCard, because it means they can continue collecting tens of billions of dollars in hidden fees, the class action lawyers who stand to collect half a billion dollars in fees without fixing the problem, and a lower court, which has cleared a time-consuming case off its docket, but has done a serious disservice to merchants and the public in the process.”

To read more, see here.

New Surcharge Rule Does Not Ease Swipe Fee Pain

This week, American Express reached a settlement agreement with businesses that will allow merchants to surcharge customers who pay with the company’s cards.  While American Express is touting this as a “win” for merchants since it gives them the ability to lower their costs by adding a “checkout” fee, the settlement actually does precious little to address the root of the problem: the skyrocketing cost of the swipe fees themselves.

Right now, swipe fees cost merchants and consumers upwards of $50 billion a year.  This new settlement does nothing to rein them in and doesn’t begin to address the secrecy in which they are set.  Moreover, merchants will not be eager to tack on this fee and create a two-tier payment system in which customers paying by credit will be charged more than those paying with cash.  The potential consumer backlash could drive customers away and as merchants scramble for business in this fragile economic environment, it’s hard to fathom that they would take such a big risk.

This settlement does not do anything to fix a payments market that is fundamentally broken.  All it does is ensure that the status quo will remain in tact and merchants and consumers will continue to feel the pinch.

Below is a statement by the Merchants Payments Coalition in response to American Express' announcement.

“This agreement is a tragic mistake that will hurt merchants and their customers,” MPC Chairman and National Retail Federation Senior Vice President and General Counsel Mallory Duncan said.  “The settlement does nothing to lower credit card swipe fees while making sure the fees will continue to be hidden from consumers and that the big credit card companies can continue to fix prices without competition.  The result is that swipe fees will continue to be the fastest-growing expense for merchants and that consumers will keep paying overinflated fees without even knowing it.”

To read more about the settlement, read here.

Game. Set. Match. New Study Shows Swipe Fee Reform Didn’t Kill Free Checking

Ever since the idea of debit swipe fee reform came to the fore, the banking industry has been peddling doomsday scenarios about how lower caps would negatively impact consumers.  It would, they argued; mark the end of free checking accounts.  But a new comprehensive report just released by the Kansas City Federal Reserve has punctured that claim, exposing it as nothing more than a bogus and idle threat.

According to the report, which looked at checking fees before and after debit reforms were put in place, free checking actually became more available post-regulation.  In fact, the share of small banks offering free checking rose from 37 percent to 44 percent from 2011 to 2012.

What’s even more compelling is that the study proves what many advocates of swipe fee reform have been claiming from the very beginning:  competition in the marketplace benefits consumers.  As the report notes, “free checking has expanded most in cities and regions where banks are engaged in vigorous competition: banks in such markets may offer free checking to attract customers from other banks or to ensure retention of their own established customers.” 

So, despite what the big banks would have us believe, it turns out that government intervention did not wreck havoc and bring things to a grinding halt.  It did just the opposite.

           

It’s time now to use this evidence as the basis for curbing the escalating costs of credit card swipe fees, which have tripled in the last decade for no discernable reason since advances in technology should have driven down the processing costs to banks.  No good can come from continuing to allow Visa and MasterCard to control 80% of the market.  This status quo stymies competition in the marketplace, which only ends up hurting both consumers and merchants.

There’s little doubt that the banks and credit card companies will continue to use consumers as their straw man in order to protect the windfall of profit they rein in from swipe fees.  But the facts, as seen in the Kansas City Fed’s report, have exposed their line of reasoning as nothing more than a pack of lies.  They should not fool us any longer.

To learn more about the Kansas City Federal Reserve’s study, read here.       

The Fed Needs a Do-Over

Last week, merchants continued their fight for lower swipe fees when they filed a brief in support of U.S. District Court Judge Richard Leon’s July 2013 decision to reject the Federal Reserve’s implementation of swipe fee regulation.  (see the Wall Street Journal’s article Retailers Make Case for Lower Debit Fees).

While Judge Leon’s ruling marked a victory for small businesses and consumers across the country, the Fed, with ample support from the banking industry, chose to appeal the decision, setting the stage for both sides to argue their case before a three-judge panel in January. 

But in the midst of all this legal wrangling, it’s important to take stock of the facts lest we miss what is really at stake here.

As it stands now, credit and debit card swipe fees are a cash cow for the banks.  They charge anywhere from 2 to 4 percent of the total bill for credit cards and 24 cents a swipe for debit cards, raking in nearly $50 billion a year off of the fees alone.  This in turn trickles down into raising prices for consumers and squeezing merchants’ bottom lines. 

That’s a tough pill to swallow when you realize that the cost to process these transactions is small, only a few cents per swipe.

To make matters worse, when it comes to credit cards, Visa and MasterCard control 80% of the market and have manipulated the system so that all of the banks that issue their cards agree to charge the same fees.  There’s no room for competition and merchants cannot negotiate on the price.

The end result has been that swipe fees are the fastest-growing expense for merchants despite the fact that technological advances have actually made it less expensive to process the transactions.

The Durbin Amendment represented the first step to rectifying this inequity as it called for debit fees to be reasonable and proportional to what it costs banks to actually process those transactions.  And while the banks lobbied hard against such caps, it should be noted that this regulatory shift ended up benefiting retailers both large and small and gave a much-needed boost to the country’s economic recovery.

Take, for instance, the findings in a new comprehensive report by noted economist Robert J. Shapiro.  It found that in 2012 alone, reducing the swipe fees for merchants actually put $5.8 billion back into the hands of consumers through lower prices, which led to sufficient increased spending to support 37,501 new jobs.  Savings and job gains would have been substantially larger—to the tune of an additional $2.79 billion in consumer savings and 17,824 jobs—if the fees had been cut to 12 cents per debit card transaction (as originally recommend by the Fed) and 24 cents for credit cards.  

Even at the lower caps, banks have enjoyed a perfectly robust profit margin.

Let’s be clear: merchants don’t mind paying for the processing service.  But there comes a point when enough is enough.  Currently, the banks are rigging the system by creating an environment where merchants are forced to pay inflated, price-fixed costs within a structure that is not competitive or transparent. 

Judge Leon laid the groundwork to righting this wrong.  It’s time for the Fed to take a do-over.  They need to end the unconscionable price gouging and give relief to merchants and their customers once and for all.

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

Sounding a False Alarm: The Big Banks & Free Checking

Memo to banks: Do you have free checking or not?

Big banks have proclaimed rather loudly that they are being forced to do away with free checking allegedly because of lost revenue from debit card reform.  But guess what?  They did a survey and found plenty of free checking, and their own lobbyist, Nessa Feddis of the American Bankers Association, even said as much in a recent article:  “… most people still pay nothing for the great service banks provide across multiple convenient channels.”

A 2010 survey conducted by the ABA, for example, shows that 53% of respondents did not pay anything for their checking account. Three years later, the same survey found that 55% of bank depositors do not pay for checking, which suggests that free checking has actually increased during the post reform era.  

What’s more, additional studies released by moneyrates.com and bankrate.com show that the monthly service charges banks bill consumers are not even related to debit card swipe fees.  Take, for instance, the fees banks levy on customers for checking accounts.  Following debit reform in October 2011, these fees at the large banks went down and then rose slightly later.  Fees today are about the same as they were before reform, demonstrating that the ebb and flow of the fees does not correlate with swipe fee changes but rather shows the independent market dynamics of consumer checking fees.

Long before the Durbin Amendment was enacted, debit card swipe fees were skyrocketing.  In the last decade alone, they have tripled but there has been no corollary decrease in the fees banks impose on their customers.  And as banks would cry us a river about how the lower cap fees are hurting their bottom line, we only need to look at the numbers again to see that their argument doesn’t hold any water.  No bank that was impacted by the Durbin Amendment is currently facing anemic profit margins.  In fact, it’s quite the opposite. Wells Fargo and other banks have recently reported huge earnings.  And, MasterCard itself just posted a significant growth in profits during the second quarter, reporting that they are up 21% from a year ago.

The banks’ phony argument about free checking accounts is just another attempt to distract federal regulators and Congress from the real problem, which is their abuse of Main Street businesses and consumers in the debit and credit card marketplace.  Debit reform was needed and now we need credit swipe fee reform or else consumers and merchants will continue to be squeezed while the banks rein in sizeable profits at our expense.

U.S. Military Feels an $86 Million Pinch from Rising Credit Card Swipe Fees

The crippling impact of swipe fees on credit cards has extended beyond the civilian marketplace and has infiltrated the U.S. military, further proving the need for legislative reform to rein in these exorbitant costs.

Swipe fees are the charges credit card companies set and banks levy on merchants for accepting their credit cards.  According to recent documents, the processing expenses at the Army & Air Force Exchange topped out last year at $86 million, critical profits that the military wants to funnel back into its own community to bolster its quality-of-life fund.

The predicament the military finds itself in shines the spotlight yet again on the broken system in which the swipe fees for credit cards are determined.  The costly and deceptive practice is nothing short of price-fixing.  Here’s why:

Visa and MasterCard control 80% of the credit card market.  Given their widespread presence, they have been able to manipulate the system so that the banks that issue their cards agree to charge the same swipe fees in concert with Visa and Mastercard even though they set their own prices on every other fee and rate.  All of this is secretly done behind closed doors, preventing merchants from being able to shop around and get better deals.  This kind of collusion is illegal in other parts of our economy and it should be here as well.

The fall out from this corrupt scheme has resulted in consumers paying more for goods and services regardless of whether they are paying with cash or by check or credit card while businesses, particularly small ones, are unable to grow and many struggle to even stay open.

For decades, merchants have been carrying the heavy burden of swipe fees, paying up to 4 percent of each sale back to the credit card company to ostensibly cover the cost of processing the transaction.  Business owners have had little to no recourse to avoid the fees, which have become a significant operating expense rivaling salaries and employee benefits.  The fees in 2011, for instance, rose to $30 billion for credit cards and $20 billion for debit cards.  Keep in mind that the actual cost to process a credit card transaction is approximately 4 cents, no matter the total amount of the transaction.

Credit card swipe fees have more than tripled in the last decade even in the face of new technology and have driven up prices for the average household by more than $250 per year.  Moreover, swipe fees in the U.S. are higher than any other country in the industrialized world, about eight times higher than in the European Union, and there is nothing currently on the books to stop them from rising or bring relief to consumers and Main Street businesses.

The military’s frustrating experience with escalating credit card swipe fees is just another chapter in this long battle to level the playing field and bring transparency and competition to the marketplace.  But until lawmakers close the opaque loophole that the banks are unfairly profiting from, nothing is going to change.  And in the absence of any meaningful reform, consumers and merchants of all stripes will continue to feel the pinch and pay the price.

Visa Lowers Swipe Fees in Europe But Stiffs US Merchants & Consumers

Billions of dollars are paid each year in swipe fees, and merchants accepting credit cards and paying the fees are not the only victims. We all cover the cost of credit card fees in the form of higher prices. There’s no competition in the U.S. swipe fees market, and all banks agree to charge the same amounts dictated by credit card companies. Nobody is stopping Visa or MasterCard from this price-fixing, which results in fees that are outrageously and unjustifiably high.

Now we learn that Visa Europe has proposed lowering swipe fees in Europe by 40% to 60%. This significant reduction would bring Visa’s fees down to only 0.3 percent of every purchase and would be very beneficial to European merchants and consumers.

So, why should U.S. merchants and consumers pay up to 4 percent of a purchase to swipe credit cards? What's different from U.S. purchases and Europe purchases?

Nothing.

Fees in U.S are eight times higher than existing European rates. Americans pay the highest fees in the world but while other countries took measures to limit the fees, in U.S. a credit card swipe fee reform is still desperately needed.

In the latest press release by the Merchants Payments Coalition, Dough Kantor, group’s counsel, says:

“European regulators are holding Visa’s feet to the fire for their outrageous swipe fees – even though the fees in Europe are a tiny fraction of what they are in the United States. There is no reason for rates to be as high as they are. This should be a wake-up call that credit card swipe fee reform is long overdue here.”

You can read the entire release here.