Swipe Fees


Fees are all the rage these days.   I will sell you anything for nothing, not including required fees for everything, the amount of which will be disclosed later.   That seems to be the hottest business model on the planet these days.   Credit cards were some of the pre-eminent innovators of this business model.   The travel industry and the telecommunications industry are currently battling for the lead.   They make the add on “rust coating” of a car dealer seem quaint.  In that context, can  you imagine what a “swipe fee” may be?

What Is A Swipe Fee

It is kind of what it sounds like, a fee for each time you use your credit card.   Before steam starts coming out of your ears, here is the good news;  Unless you are a merchant, you do not have to pay swipe fees.    If you are a merchant that chooses to accept credit cards, then yes, you do have to pay a fee every time one of your customers pays with a credit card in addition to a percentage of the sale.    If you have ever sold something on eBay, you have some idea how this feels.

Swipe Fees Are Optional

Merchants love to complain that they have to pay swipe fees, but they are not mandatory.   My favorite bagel store in Denver, The Bagel Store, does not pay swipe fees.     The same was true for the company that built the fence in my back yard.    That is because they have both chosen not to accept credit cards.  Despite my preference for paying with a credit card, from a 50 cent bagel to fence that costs thousands of dollars, I chose the merchants because they provide a superior product at a competitive price.  Despite not accepting credit cards, both companies have been prosperous for decades.

Why Swipe Fees Aren’t So Bad

I have listened to merchants cry about swipe fees, and read editorials where some have proposed that they be price fixed. Keep in mind that these swipe fees by themselves are what makes credit cards feasible customers who pay their balance in full every month, as well as for all debit card and charge card holders.   Furthermore, what merchants consider excessive swipe fees is what makes possible reward cards.    As my readers know, reward cards are a subject near and dear to my heart.    That said, I would not oppose some common sense regulation of the market for swipe fees, also known as interchange fees.    Ideally, such regulation would be the mirror image of the CARD Act, a piece of legislation I strongly supported.

The Retail Industry Perspective On Swipe Fees

I recently read this article that pointed out that swipe fees are rising in the US while falling in Europe.   Unfortunately, the author looses all credibility when she says;

“Interchange fees, which are imposed by the card association and issuing banks to process the credit and debit card transactions, essentially function as a hidden tax on consumers.”

If that statement were true, then you could just as easily substitute “interchange fees” with “worker’s health care”,  “management bonuses” or any other business expense.   The author ignores the fact that prices are determined by the market, and business expenses be they interchange fees or lavish corporate retreats are never directly passed on to consumers as a “hidden tax”.

The author quotes John Emling,the  senior vice president for government affairs at Retail Industry Leaders Association;

” As Congress debates comprehensive financial reform, now is the time to bring appropriate oversight and transparency to interchange fees.”

By now, I have learned that when retailers refer to  “transparency,” they are talking about charging credit card purchases a transaction fee to cover their swipe fees.   If these swipe fees truly “function as a hidden tax”, then such transparency would not be necessary.   Note to the Retail Industry Leaders Association:  Feel free to transparently disclose how much you are paying in swipe fees, just don’t substitute an actual surcharge on all credit card purchases for what you claim is currently a “hidden tax”.

Emling claims that;

“”While most Western economies have taken action to rein in excessive debit card swipe fees, here in the U.S., the credit and debit card industry continues to hurt retailers and consumers by setting rates indiscriminately and raising rates at will.” [emphasis mine]

Few things irk me more than an industry organization trying to argue their point by advocating policies that enrich themselves with the claim that they will benefit consumers.   Just be honest and argue your point from your perspective.   They should stick to advocating for their industry, and let consumer advocates make the case for consumer’s interests.

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