Peter Guidi's Blog

Interchanges fees and fairness, who’s money is it anyway?

In alternative payment, credit card, debit card, interchange, payment, Uncategorized on November 12, 2009 at 9:06 pm

Last month the House Financial Services Committee took testimony on H.R. 2382 from both the Financial Industry and representatives of the Merchants Payments Coalition which represents NACS. Both parties represented their point of view. On the retailer side, the argument remains that the retailers are unable to negotiate with the card associations for lower prices. Retailers expressed that banks and card associations are monopolistic so, congress should act to legislate and control fees or at least give retailers the ability to negotiate for lower fees and that the payment providers should be subject to Anti-Trust legal action. The key evidence being the “outrageous” swipe fees retailers pay to accept a credit card. On the other hand the Banks cried foul claiming that retailers are simply trying to use their power to gain the valuable credit card payment services without having to pay a fair price. The credit card representatives presented an argument demonstrating that interchange fees are fair, and in fact are undervalued.

This raises the question: Why would Merchants accept payment cards if the fees associated with the card are greater than the benefits? Interchange is a fee for a service that brings value to consumers and retailers and while retailers may have choices about method of payment, or even alternative payments, it turns out that promoting a method of payment is expensive and time consuming. It’s so much easier to put a sticker on the door that says” MasterCard and Visa” accepted here.  Eleanor Roosevelt once said, “It is not fair to ask of others what you are unwilling to do yourself” and therein may lay the answer. (

  1. I think the problem is that the merchants are in a catch-22 type situation. If they don’t accept credit cards a significant amount of custmores won’t use their business as it is a convenience that is almost taken for granted at this point. But if they do use credit cards they have no say or leverage to negotiate the rates.

    If you are in a low profit margin business this means you either lose customers by not accepting credit cards or you agree to give the credit card companies most of your profit up front (and some transactions are a losing proposition). Restaurants, for example, often have a profit margin of 3-5%. Paying transaction fees of 2% or higher is pretty harsh.

    • Merchants are in a catch-22 type situation and it is true that if they don’t accept credit cards some customers will shop elsewhere. Your question veers left when you say retailers “use” credit cards, they do not; consumers “use” cards and retailers “accept” cards, there is a difference. It is the bank that competes for the consumer’s method of payment. If the retailer wants to negotiate for payment then it is the consumer’s “method of payment” they must capture.

      When a merchant decides that the cost of accepting credit cards are higher than the costs of refusing credit cards then Retailers and Consumers will begin to make decisions on not only where they shop but also, how to pay. As to current “swipe” fees, the economics of the payment card system suggest that the current system provides the consumer with the greatest benefit, a point that retailer’s dispute. .

      Finally, please forward my blog to your network, I’d welcome their input.

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