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)

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.

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.

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

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.

Credit Card Companies Make A Killing At Tax Time

You may be surprised to learn that if you paid your tax bill with your credit card this week, you paid a hefty, extra fee. The fee cost you anywhere from 2 to 4 percent of your total tax bill, and it didn't go to Uncle Sam either.

It went directly to banks and credit card companies. Bloomberg reports that if all U.S. residents paid their income and estate taxes by credit card, banks would rake in about $6 to 8 billion -- more than half of the IRS' proposed 2013 budget.

Granted, not all residents pay their tax bills this way, but more and more of us no longer use checks. 

Unlike Uncle Sam, merchants do not pass along the cost of what are known as "swipe fees" to their customers. They can't afford to; the marketplace is too competitive. Instead, some of that costs is deducted from their profits and calculated into consumer prices.

Banks and credit cards basically agree what the swipe fee will be or price fix, an activity that is usually against the law. As a result, swipe fees have tripled in the past decade and have become the second highest expense for merchants after labor. Meanwhile, in Europe, consumers and merchants pay swipe fees that are EIGHT times LOWER than what U.S. consumers and merchants pay.

Learn more about swipe fees here.

In Case There Was Any Doubt: Further Proof Debit Card Reform Increased Competition, Didn't Hurt Banks

In case there was any doubt about whether or not debit card reform was a good or bad thing for banks and the overall marketplace, Time.com banking writer Martha White weighed in today with this piece.

The big banks impacted by the Durbin Amendment, which cut debit card swipe fees by half, predicted doom and gloom not just for themselves but also for smaller banks and credit unions, exempted under the amendment.

It didn't happen. The Federal Reserve said it; the Kansas City Federal Reserve Bank said it; the GAO said it; and the FTC said it.

Instead of doom and gloom, banks -- even the big banks -- have been promoting debit cards stronger than ever, writes White.

"After an initial retrenchment, banks now are marketing debit cards as aggressively as ever. They’re even adding back debit card rewards programs, which many had discontinued in anticipation of the hit the regulations would deliver to their bottom lines."

Banks have been promoting debit as fast, convenient and secure and encouraging debit card use for big and small purchases- from a big plasma TV to a pack of gum. (Merchants suffer but banks make out big time on small purchases, charging 24 cents a debit swipe regardless of whether it's $1 or $100.)

"Besides looking for new customers, banks are trying to get current customers to use their debit cards more frequently. “Some banks are encouraging customers to use the card for small purchases,” Susan Wolfe says. After the swipe-fee rule kicked in, certain banks adopted the 24-cent cap as an effective floor as well as a ceiling. Since they earn the same amount if you buy a cup of coffee or a TV, they make out better if their customers use debit cards for lots of transactions, no matter how small."

Banks have even reintroduced rewards programs for debit cards in hopes of boosting fee revenue with increased volume of debit card transactions.

Read the entire article here.

How Credit Card Companies Make Money

Source: CreditScore.net

What Is Interchange?

source: visual.ly/fee fighters

States Need to Make Sure "Nobody Is Swiping Our Lunch"

Merchants refuse to pass constantly growing swipe fees onto customers paying with credit cards even though in most states they are allowed to do so. In today’s highly competitive retail market nobody can afford to push customers away.
 
In many places, like NJ, lawmakers have been very quick to introduce bills that would ban surcharging. In a recent article The Record columnist John Cichowski says such law would be a purely cosmetic fix to a problem that doesn’t exist. It might prevent sellers from adding an additional fee to credit card paying customers’ bills but it doesn’t stop credit card companies from charging merchants pre-set and unreasonably high fees that significantly reduce their profits and force them to raise prices for all customers. In the end, even customers paying with cash end up paying more.
 
To fix the swipe fee market, lawmakers need to look closer at the way those fees are set by Visa and MasterCard and force them and banks issuing the cards to compete for merchants’ business just like retailers compete for a customer.
 
“The people who pay these fees – either directly or indirectly — need lawmakers to dig deeper than cosmetic solutions to make sure nobody is swiping our lunch.” Cichowski says.
 
Read the rest of the article here.

Banks Mark Up Swipe Fees By 500%. Why? Because the Fed Won't Stop Them

In a recent report, the Federal Reserve found that it costs banks and credit card companies about 5 cents to process a debit card transaction. With all of our technological advances, that amount sounds reasonable, and debit card reform, as legislated in the Durbin Amendment, said banks should charge a "reasonable" fee for swiping their cards. Only problem is they don't charge 5 cents. They charge 24 cents, and the Fed is doing nothing about it.

It is a 500% markup! Unthinkable in any other marketplace.
 
The Durbin Amendment required the Federal Reserve to limit swipe-fees on debit cards that banks charge merchants and make sure the fees are relative to the actual cost of processing those transactions. New rules capped interchange fees charged by big banks at 24 cents, excluding institutions with less than $10 billion in assets. This reduction, however, remains grossly out of sync with the costs to swipe a card. The banks continue to profit unfairly from the swipe fee paid for by not just merchants but consumers in the form of higher prices.

Read the Merchants Payments Coalition’s press release on Federal Reserve’s newest report 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.

Why Visa/MC Settlement Didn’t Fix Swipe Fee Problem

There’s no need for consumers to worry about swipe fees being pushed onto them by retailers just because Visa/MasterCard antitrust settlement allows merchants to do so in some states, says consumer advocate Ed Mierzwinski at the U.S. Public Interest Research Group in an article. He says the “checkout fee” or surcharge would be a sure way for business owners to lose customers, and they definitely don’t want this to happen.

The settlement has not fixed the broken swipe fee market, Mierzwinski argues. Merchants don’t think it’s fair to punish their customers for using a credit card and they will continue footing extremely high credit card fee bills.

Mierzwinski explains that the $6 billion payout in the settlement is a drop in the bucket compared to the amount retailers pay in swipe fees, especially since the settlement does not prevent Visa and MasterCard from raising the fees.

Moreover, it took away merchants’ right to ever sue the credit card companies over the fees or any payment technologies, even those that are not being used yet, no matter how unjust or illegal they might be. This gives Visa and MasterCard even more power in a market they already control.

Read this article by Ed Mierzwinski, Consumer Program Director at the U.S. Public Interest Research Group to find out more about why the settlement did not fix the swipe fee problem.

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