Fees hurting businesses, customers

Posted: March 30, 2013

Pennsylvania legislators are right to be concerned about consumers paying excessive credit-card swipe fees, but the solution to the problem lies not with the merchants who pay the fees, but with the credit-card companies that set them in the first place.

A bill under consideration in the state legislature would ban merchants from imposing a surcharge on customers who use credit cards. I'm not sure it's needed. I have not heard of one retailer, merchant, or business owner even considering surcharging. The marketplace is much too competitive to raise consumer prices.

What I have heard, though, is that swipe fees are crippling business owners, and something must be done. Swipe fees have tripled in the past decade, raking in $30 billion for banks in 2011 alone.

I would encourage the legislature to look not at surcharging, but at price-fixing.

In the past decade, Visa and MasterCard - which control 80 percent of the credit-card market - have tripled the amount of the swipe fees they charge business owners. The two companies get together and set the fee amount in secret for all the banks that issue their cards. Meanwhile, the big banks that issue the cards agree to charge the same fees as well. Merchants and retailers are not allowed to price-fix because the government wants to encourage competition. Somehow, though, banks and credit-card companies get away with it.

Retailers and merchants are very sensitive to price. They don't want to be priced out of the market. At the same time, many small-business owners face profit margins of only 1 to 2 percent, while swipe fees can be as high as 4 percent of the total purchase. Turning into their second-highest cost, aside from labor, the fees are literally making it impossible for many businesses to make a profit.

And, even though technology has lowered the cost for banks to transmit credit-card charges, their swipe fees have grown. In the United States, they are eight times higher than in Europe, despite the fact that the costs in New York to use a credit card are the same, if not lower, than in London or Paris.

Not only are swipe fees overpriced, they are hidden and lack transparency. Merchants have no idea what they will have to pay when a customer uses his or her credit card until days or weeks later, when the statement from the bank that issued the card arrives. And there are more than 300 different fees, depending upon the type of card and the merchant accepting it.

It's not any better for consumers. Cardholders don't know what the fee is, either. It's not on the credit-card statement, not even in the small print.

The surcharge ban bill chases a problem that doesn't exist. The real problem is how the highly profitable credit-card companies are preventing business owners from growing and hiring more people, and how they are indirectly forcing consumers to pay for the swipe fees through higher consumer prices. Business owners aren't asking for guaranteed profits. They are asking for a competitive marketplace, and that should include Visa, MasterCard, and the banks.


Brian A. Rider is president and CEO of the Pennsylvania Retailers' Association. E-mail him at brian@paretailers.org.

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