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)

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.

Visa and MasterCard’s Secret Price-Fixing Keeps Swipe Fees Unreasonably High

Last year merchants paid $30 billion in swipe fees. That money could have gone back to the customers in form of lower prices if it weren't for credit card companies and banks that work together to set swipe fees in secret and make them unjustly high. Visa and MasterCard control the market and have all the power to dictate the prices the banks charge retailers when customers use their credit cards. The fee system is complicated and confusing. Merchants have no way of telling how much they will be charged in swipe fees until they get the bill. Visa and MasterCard have up to 240 different types of charges.

“Visa and MasterCard have a stranglehold on the market. They set the fees in secret and banks all charge the same thing rather than competing on price. If they price-fixed consumer fees they would probably go to jail, but because the fee is charged to businesses and hidden they have managed to get away with it.” said Doug Kantor,  a counsel to Merchants Payments Coalition in MPC latest press release on price fixing and hidden fees.

For more facts on price-fixing read this fact sheet by Merchants Payments Coalition.

Banking Industry Wrong About Impact Of Durbin Amendment

Financial industry experts and three separate government agencies have confirmed that small banks and credit unions have benefitted from debit reform, putting to rest the banking lobby's negative and false claims about the impact of the Durbin Amendment.

Studies by the Federal Reserve, the Federal Reserve of Kansas City, the Federal Trade Commission and the Government Accountability Office have shown that fee revenues for banks exempted from the interchange fee limits have remained unaffected or have even grown thanks to the two-tier fee system mandated by debit reform for exempt and non-exempt banks.

As a result of the reform, small institutions can now compete with large banks and have attracted new customers with improved customer service and offerings.

For more information read the Merchants Payments Coalitions’ latest fact sheet: The Verdict Is In:  Small Banks Win With Debit Reform

Customer Dissatisfaction With Banks On The Rise

Americans don’t trust financial institutions even when it comes to their own banks and judging by the enormous amounts financial industry spends on public image campaigns and advertising, banks are well aware that their consumers are getting fed up with lack of transparency, high and unfair fees and poor customer service.

Doug Kantor, counsel to the Merchants Payments Coalition says:

“The big banks’ multi-billion dollar campaigns aren’t moving the needle on the favorability meter because they continue to stick consumers and Main Street businesses with unfair, hidden fees. With good reason, Americans still do not trust big banks”

The MPC has put together results of a few surveys that looked into Americans’ perception of banks. Findings show:

• 64% say they do not fully trust big banks.
• 87% do not feel their bank is transparent
• 68% do not perceive their bank as being “on their side
• 30% say they are sometimes surprised by unexpected bank fees
• 31% claim their bank’s fees are simply unfair
• Americans’ confidence in U.S. banks is at a record-low 21%, down from 23% in 2010.

Passing the costs onto the customer in the form of high fees is a sure way to drive them away. ATM fees, checking fees, debit and credit card fees, swipe fees are all on the rise with swipe fees being eight times higher in U.S. than Europe. No wonder Americans are not happy.

Credit Union Survey Echos Other Reports: Durbin Amendment Works

In an interview with the Credit Union National Association, the Credit Union Times reported that credit union profits from debit cards have been largely unaffected by a reduction in the debit card swipe fee.

Just like recent reports by the FTC, the Federal Reserve and GAO, the CUNA survey shows that debit reform, as legislated by the Durbin Amendment, has benefited small banks, credit unions and consumers, disproving the big banks' false claims that reduced debit fees have harmed small banks and credit unions.

In a recent press release by the Merchants Payments Coalition, Lyle Beckwith, Sr. Vice President for Government Relations at NACS, talks about how big banks are misleading the public with false statements about the impact of debit card swipe fee reduction in order to avoid further reforms.

“The big banks have pushed the line that small banks are suffering as a way to stymie further reforms on rising swipe fees on credit cards, but the facts simply don't back them up,”

MPC’s full release can be found here.

Swipe Fees Drastically Slashing Supermarkets’ Thin Profits

Not many of us realize that when we quickly grab a $3 carton of milk from the neighborhood grocery store and pay with a debit card, the swipe fee that the store operator must pay the bank to process the transaction can be higher than the fee the store pays on $200 worth of groceries.

How can this be? Because the Federal Reserve is allowing banks to charge the maximum for a debit card transaction -- 22 cents -- under the Durbin Amendment, which reduced debit card fees from 42 cents a transaction.  The Durbin Amendment did not intend for banks to be able to charge 22 cents for a carton of milk or a cup of coffee, but that is the way the Fed is implementing the law.  A group of merchants have sued the Fed to make changes.

“These transaction costs have been eating into profit at an increasing rate,” says Bill Bishop, chairman of Willard Bishop, a consulting firm based in Barrington, Ill. “Retailers have been focused on trying to reduce them.”

Read more from Richard Turcsik, editor of Grocery Headquarters Magazine, here. 

BoA's Recent Move Proves Durbin Amendment A Success

The Durbin Amendment forced big banks to lower their swipe fees on debit cards and gave smaller banks a chance to compete with the financial giants. Bank of America’s recent cancellation of plans to charge for checking only proves debit reform is working.

Banks have been blaming the Durbin Amendment for everything wrong with the world, but as Doug Kantor, counsel to the Merchants Payments Coalition, wrote in a Huffington Post blog, debit reform has brought greater competition among banks to the marketplace.

 “The truth is, checking fees are set by competitive market dynamics, while swipe fees on debit cards haven't been. The fees were decided by Visa and MasterCard and every bank that belonged to one or the other charged the same thing - that looks just like price-fixing in every other part of the economy. The fact that swipe fees tripled over the past decade didn't prevent banks from increasing checking fees at the same time. Fluctuations in checking fees and other banking fees since debit reform are fundamentally the same as what was happening in the consumer banking market before the reforms were enacted with checking fees going up at the same or a lesser rate.”

In other words, debit reform forced big banks to compete for customers. The rest of Kantor's article can be found here.

Small Banks Benefitted, Not Harmed, By Durbin Amendment

Visa and MasterCard Under FTC Probe

In a recent report, the Federal Trade Commission has taken a close look into debit card transactions and found that small banks have not been hurt by the Durbin Amendment that lowered swipe fees charged by card companies and banks with assets above $10 billion. The report also announced that the FTC is investigating Visa and MasterCard for practices that might have prevented merchants from using lower cost processors of debit card transactions -- in violation of the Durbin Amendment.

From the report:

“…(I)nterchange fees paid to exempt issuers are higher than those paid to non-exempt issuers. A recent report by the General Accountability Office also concluded that ‘community banks and credit unions have not, on average, experienced a significant decline in their debit interchange fees…. This is consistent with early reports that the payment card networks had adopted a two-tier fee structure for exempt and non-exempt issuers.”

Doug Kantor, counsel to the Merchants Payments Coalition said:

“The FTC report confirms what merchants have been saying all along, that after the reforms small banks and credit union would not only not be harmed by debit but also would benefit from reform, along with consumers, merchants and the overall economy,”

For more information read Merchants Payments Coalition press release here and FTC report here.

Facts About The Broken Credit Card Swipe Fee System

Current swipe fee system is not working and it needs improvement, clarity and government oversight. Right now it is completely controlled by Visa, MasterCard and major banks that charge merchants unjustifiably high transaction fees that significantly reduce business owners’ profit margins. Retailers can’t opt-out or comparison-shop. U.S. card fee system lacks transparency, competition and is almost impossible for merchants to decipher.

Facts:

• In the U.S., banks take between 2 and 3 percent of every credit card purchase.
• The average profit margin for U.S. merchants is 1-3 percent. That means the swipe fees going to the banks equal or exceed the business owner’s profit on each transaction.
• Right now, many small business owners don’t even know the cost of each transaction because the system dictated by the credit card companies and the banks keeps fees hidden and remarkably complex.
• Currently, Visa has over 70 swipe fee categories while MasterCard has over 240 different categories.

Swipe fees are out of control and constantly growing, even though with today’s technology the actual cost of processing credit card transactions should be minimal and U.S. has the highest fees in the world hurting both merchants and consumers.

Facts:

• Today, hidden swipe fees are costing average consumers hundreds of dollars a year – no matter how they pay for their purchases.
• U.S. swipe fees are 7 or 8 times higher than the standard European rate on each transaction
• Hidden swipe fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined
• Hidden swipe fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined

For more facts about swipe fees read:

• The Facts About Debit Reform
• The Facts About Credit Card Swipe Fees
• “Swipe Fee” Reform – International Lessons

A Roundup of Credit Card Ripoffs

Major banks and credit card companies have been caught red-handed misleading their customers with deceptive credit and debit card fees. The Consumer Financial Protection Bureau, agency established last year to protect consumers from unfair and abusive practices of financial institutions, ordered Bank of America, American Express, Capital One and Discover to refund $425 million to their customers.

Sacramento Bee personal finance columnist Claudia Buck lists a few of credit card fee scams used to rip-off consumers:

• “Bank of America routinely processed debit transactions in order of highest to lowest amounts. Instead of debiting them chronologically in the order they occurred, the bank started with the highest amount - say a $1,000 rent payment. If that exceeded what was in the person's bank account, then every subsequent debit charge racked up overdraft fees, which typically are $35 per transaction. As a result, some consumers got dinged thousands in overdraft fees.”       

•  “American Express: Three AmEx subsidiaries were ordered to pay $85 million to about 250,000 cardholders for various illegal credit card practices between 2003 and spring 2012. The violations "occurred at every stage of the consumer experience, from shopping for cards, to applying for cards, to paying charges, and to paying off debt, " said the CFPB." 

•  “Capital One's call centers targeted consumers with low credit scores. When those customers called to activate their credit cards, "high-pressure" salespeople were misleading about the cost, eligibility and benefits of various products, such as job-loss "payment protection" or credit score monitoring.” 

 You can read Claudia Buck’s article here.

Time for Congress to Put an End to Visa-MasterCard Price-Fixing

While business owners are struggling to keep operating costs and prices down, credit card companies and big banks charge them swipe fees that are extremely high and unreasonable if we consider how little it actually costs the banks to process credit card transactions.

Bill Leichsenring, the owner of two restaurants in Iowa, describes how much credit card fees hurt his businesses and calls on Congress to act and bring transparency and competitive pricing to the swipe fee system.

“We need transparency and competition. We need the ability to negotiate to reduce our operating costs so we can hold down prices.

I believe in free markets and don’t usually advocate government interference. But in cases like this, where the market is clearly broken, Congress needs to step in.

Members of Congress should determine why U.S. card swipe fees are so much higher — including the ratio of what is charged businesses vs. actual costs — and set about demanding competitive market pricing for swipe fees instead of the price-fixing we have today.”

Read Leichsenring’s article here.

Holiday Shoppers Be Aware

With the holiday season almost here and shoppers crowding stores and restaurants, Scott DeFife, Executive Vice President for Policy & Government Affairs for the National Restaurant Association, reminds us that every time we use our credit card, banks and credit card companies charge merchants a hidden and unjustified swipe fee.

With Visa and MasterCard dominating the market, business owners cannot negotiate swipe fees and the only choice they have to avoid them is not to accept credit cards, which would be the kiss of death.

 “Another clear indicator of a broken market is the fact that restaurant owners can’t negotiate swipe fees the way they can negotiate for nearly every other business expense. It’s a take it or leave it deal – either accept the fees as they are or don’t accept plastic. That’s not a real choice if you want to attract customers. And, merchants can’t even be sure that the fees they pay are correct. When a customer gives a credit card to the cashier or server, there is no way of knowing what the fee will be for that card, since the rates vary by card and by reward program.”

Lyle Beckwith, senior vice president for government relations for the National Association of Convenience Stores, calls swipe fees “a hidden tax” that goes directly to banks. Not many know about it and yet we all pay the price:

“Even though swipe fees are invisible to consumers, they result in higher prices, even for those who mostly pay with cash and rarely use a card. The only difference between swipe fees and taxes is that the $50 billion in revenue that the swipe fee generates every year goes directly to banks rather than to the government. Every American household on average pays about $427 a year in the swipe fee “tax.””

Read DeFife’s article here and Beckwith’s article here.  

The Market Power of Visa and MasterCard

New York Times Economix blogger Nancy Folbre who earlier this month wrote about unfairness of swipe fees has taken a closer look at how extremely complicated the fee system is for merchants to maneuver and how business owners are left with no choice but to pay exceedingly high fees:

“This market structure is hard to discern, because cards themselves are issued by different banks, with different terms — and they come in many different colors. Among issuers, the top 10 credit-card-issuing banks accounted for more than 90 percent of outstanding credit card debt in 2009.”  

“Both the payment networks and the card issuers operate in a “two-sided” market — selling their services both to consumers and to merchants. Consumers can engage in at least some comparison shopping — considering both terms of service and interest rates charged by different providers.”  

“Small businesses, however, have long been limited in their ability to steer customers toward credit cards that charge lower fees, partly as a result of payment-network rules and partly because they fear inconveniencing their customers and reducing sales.” 

“Payment networks and card issuers know how to exploit that fear, and they have a common interest in extracting as much revenue as possible from the merchants who rely on their services. Their market power puts them in a strong position to do so.”

 To read the entire blog, see here.

Credit Card Industry Buries Merchants In Paper, Killing Their Bottom Line

This article in a trade publication for tire dealers demonstrates how the credit card industry buries merchants in paper about the various swipe fee options merchants pay to banks and credit card companies when customers use their debit and credit cards. By the time merchants read all the fine print, they are never sure if they have the best deal or the worst deal. All they do know is the fees -- worth $50 billion a year in revenue to the card industry -- is killing their bottom line. Here are just a few excerpts from the article.

Read the entire article here:

To Fee or Not To Fee
Modern Tire Dealer

.... Unraveling the mystery of credit card fees ... it’s important to make sure every tire and service shop understands the credit card jargon: Discount rate — price paid by business to process payment transactions. Usually consists of a combination of items:

1. Interchange rates — rates are determined by card associations, i.e. VISA, Mastercard, and paid to the issuing bank, and are usually a percentage plus a transaction amount.
2. Assessments — fees determined and paid to the card associations (approximately 11 basis points).
3. Mark-ups — profit add-ons by your merchant services bank.
4. Other fees — authorization request fees:

• monthly statement fees,
• monthly minimum fees,
• batch fees,
• customer service fees,
• annual merchant fees, and
• chargeback fees.

NOTE: These may vary as to how they’re labeled on monthly statements. If it seems like there is an endless list of fees, this is just the tip of the iceberg. There are also a variety of methods in which merchant service programs are marketed by service processors. Here are some examples of merchant service programs which are offered to dealers:

• Interchange plus — the interchange rate plus a bank markup.
• Fixed rate plus — a minimum interchange rate, plus excess of interchange in excess of minimum.
• Tiered pricing — transactions put into tiers based upon transaction types.
• Bill backs – a variation of interchange plus.

The next issue is making sure that your transactions are charged the lowest possible rate available per the program that you are with. David Eckroth, controller for Northwest Tire Inc., Bismarck, N.D., spoke to his 20 Group dealers recently on the topic of credit card fees: “Managing processing costs is critical in keeping the fees as low as possible. One way to do this is to avoid downgrades, or transactions which do not meet the card association requirements to qualify for lowest interchange rates. The main reasons for downgrades are: key entering rather than swiping; not using AVS (Address Verification Service) on key-entered transactions; not settling transactions daily; and not answering questions for input items such as sales taxes.”

Managing card disputes 

Sometimes the bank will “chargeback” a transaction (cost of goods plus fee) when the customer disputes a charge. When this happens, the amount is sometimes automatically deducted from your checking or savings account along with any chargeback fee.

While this doesn’t happen often in tire and service transactions, it can happen and dealers should be aware of this potential action from an unhappy customer.

A cardholder can initiate a chargeback within 120 days of the delivery date of the products and/or services. A card issuing bank also can initiate a chargeback within seven to 75 days.

Some chargebacks can be reversed and resolved in your favor without the loss of the sale. It’s important that the dealer provide all of the information regarding the transaction, such as proof of delivery, signed receipt, invoice, etc. Document how this information is provided through the Electronic Integrated Dispute System (eIDS) within 14 days of the chargeback issuance date.

Preventing credit card disputes 

Of course the best way to avoid card disputes is to satisfy customers even if they end up with a higher ticket than anticipated. Eckroth provided a guide on how to prevent card disputes before they end up being a problem.

Eckroth also suggests that at least once a year you should request a review from your credit card merchant services processor.

Ask to review the makeup of cards accepted, a review of the history of any downgrades, and have them provide a detailed cost analysis of all transaction fees.

How to reduce credit fees

Hank Feldman, president of Performance Plus Tire and Automotive in Long Beach, Calif., recently won second place in his 20 Group’s Best Idea Contest for giving his group a simple three-step approach to reducing fees. If dealers follow these steps, they will secure the most competitive fees, he says:

1. Quote: Get quotes at least twice a year; they can be done over the phone; use only direct processors; and send two months of statements for review.
2. Negotiate: Always ask for the interchange rate plus the lowest possible markup; always ask for the lowest possible per-transaction fee; ask for same-day credit at the bank (24 hours); ask for free equipment; and offer your existing provider the opportunity to match rates.
3. Monitor: Request monitoring of transactions to ensure your account is set up correctly, avoiding increased interchange rates; get verifiable references; and ask for a dedicated account representative.

... Take these steps to prevent credit card disputes Provide a superior customer experience Card not present at point-of-sale

1. Indicate business name and customer service phone number on cardholder statements.
2. Email order, shipment and credit confirmations.
3. Provide accessible live customer service agents.
4. Clearly indicate your return and shipping policy and request that shoppers “click and accept” the policies before the transaction can be completed.

Manage fraud at the time the transaction is processed Card present at point-of-sale

1. Always obtain an authorization for the full amount, at the time of the purchase and via your terminal.
2. Always swipe the card (do not key enter), review customer signature and verify the card number.
3. Refuse a card which is declined for authorization.

Card not present at point-of-sale

1. Use Address Verification Service (AVS) and CVV2, CVC2 and CID (three-digit code) verification. These are security features for credit card transactions on the Internet and over the phone. CVV and CID represent Card Verification Value (varying with the card issuers).
2. Obtain signed proof of delivery.

Manage chargebacks and retrieval requests Both card present and card not present at the merchant’s point-of-sale

1. Review chargebacks and retrieval requests regularly.
2. Respond promptly to retrieval requests.
3. Research and manage your chargeback and retrieval requests on ClientLine.
4. Gain efficiencies by resolving disputes online, with Electronic Integrated Dispute System (known as eIDS).
5. Use the online Resolve Chargeback Tool.

NY Times Blogger Weighs in On Merchants' Side in "The Big Swipe"

University of Massachusetts economics professor and New York Times Economix blogger Nancy Folbre weighs in on the swipe fee debate, stating that "basic economic principles" side with the merchants' arguments that swipe fees on debit and credit cards are unfair and too high. She writes:

"Basic economic principles strengthen their case. Banks that are “too big to fail” are also big enough to bully smaller businesses. Since the early 1970s, the five largest banking institutions in the United States have tripled their share of financial assets from 17 percent to 52 percent. The retail sector is more diverse and more competitive: In the first quarter of 2012, the median profit margin was 7 percent for discretionary consumer goods and 8 percent for consumer staples, compared to almost 16 percent for financials.   

"The credit card industry is even more concentrated than banking. In 2010 Visa and MasterCard alone accounted for 82 percent of all credit receivables outstanding. For many years they made it difficult for merchants to offer a cash discount, or better terms to customers with less expensive cards. Left with no practical option other than declining to accept credit cards altogether, which would hurt their sales, merchants had little choice but to pay ever-higher swipe fees." 

 Read more of her blog, The Big Swipe.