{"id":14212,"date":"2010-05-12T20:00:22","date_gmt":"2010-05-13T00:00:22","guid":{"rendered":"\/\/www.askmrcreditcard.com\/news\/?p=14212"},"modified":"2010-05-12T20:00:22","modified_gmt":"2010-05-13T00:00:22","slug":"the-case-agains-swipe-fees","status":"publish","type":"post","link":"https:\/\/www.askmrcreditcard.com\/news\/the-case-agains-swipe-fees\/","title":{"rendered":"The Case Against Swipe Fees"},"content":{"rendered":"

This week, I have been exploring the issue of interchange fees<\/a>, also known as swipe fees.<\/p>\n

Swipe Fees<\/a><\/p>\n

More On Swipe Fees<\/a><\/p>\n

I have been very eager to make the case for<\/em><\/strong> swipe fees in their current form, as I have found much of the merchant propaganda against swipe fees to be so dramatically poor.\u00a0\u00a0\u00a0 Take for example, this web site<\/a> from the Merchants Payment Coalition.\u00a0\u00a0 In it, they repeatedly claim that the swipe fees cost consumers<\/strong> $42 Billion a year.\u00a0\u00a0 By consumers, they must mean merchants, who actually pay the swipe fees, otherwise why would they care?\u00a0\u00a0 For the record, a merchant is pretty much the opposite of a consumer, but why get technical? \u00a0 At worst, some percentage of these fees are passed on to consumers, as any reasonable opponent of swipe fees must concede.<\/p>\n

A Reasonable Case Against Swipe Fees<\/strong><\/p>\n

After reading so much worthless industry propaganda against interchange fees, imagine my surprise when I came across a well researched and presented economic argument against swipe fees.\u00a0\u00a0\u00a0 Sure the web site CreditCardCon.com<\/a> didn’t initially strike me as a place I would find a reasoned argument against swipe fees, but here it is.<\/a> Instead of merely adding up interchange fees and declaring them to be a tax directly passed on to consumers, the authors of this paper<\/a>, Robert J. Shapiro and Jiwon Vellucci actually attempt to quantify how much of the swipe fees are being passed on to consumers.\u00a0\u00a0\u00a0 They conclude that 56% of the interchange fees are passed on to consumers.\u00a0\u00a0\u00a0 Since Robert J. Shapiro<\/a> does have a PhD from Harvard (and I do not), I will take his word on this statistic which is a far cry from the 100% “tax on consumers argument” that the industry loves to claim.<\/p>\n

With that number out of the way, let’s turn to the central components of their argument:<\/p>\n

Regressive Cross-subsidies<\/strong><\/p>\n

Regressive cross-subsidies is a fancy economic term for the poor subsidizing the rich in a reverse Robin Hood sort of way.\u00a0\u00a0 Most people in the center and the left of American politics (and even some on the right) feel that regressive cross-subsidies are a bad thing.\u00a0\u00a0 I agree.\u00a0\u00a0 Here is how Shapiro and Vellucci argue that swipe fees are regressive cross-subsidies:<\/p>\n

We estimate that about 56 percent of interchange fees are passed along by merchants in the form of higher prices for consumers. However, an estimated 54 percent of lower and moderate-income American families pay these prices without receiving the benefits of any credit card.\u00a0 Moreover, some 59 percent of higher-income card holders receive rewards financed by these fees, compared to 25 percent of lower-income card holders and 39 percent of those with moderate incomes. As a result, these arrangements force those without cards or who carry cards with no rewards to subsidize the rewards which largely go to higher-income people.<\/em><\/p><\/blockquote>\n

Again, I am inclined to trust the source for these numbers, especially for the sake of this argument.<\/p>\n

Higher Prices Cost Jobs<\/strong><\/p>\n

If you accept that approximately half of the interchange fees paid by merchants result in higher prices paid by consumers, one may then extrapolate that these higher prices reduce consumption and have a negative effect on the overall number of jobs in the economy.\u00a0\u00a0 The authors assert that:<\/p>\n

“…interchange fees add approximately 1 to 3 percent to the price of virtually
\neverything Americans purchase, and an estimated 56 percent of these additional costs are passed along to consumers in higher prices. As a result, American households pay an average of $230 each, per-year, in higher prices, net of the system\u2019s actual processing and transaction costs. These higher prices reduce real demand for goods and services, which reduces job creation in the industries that produce the goods and services. We estimate that if these additional costs were not present, lower interchange fees would lead to the creation of 242,000 new jobs.”<\/em><\/p><\/blockquote>\n

Here as well, I will not argue with data, but I will take exception to the conclusions in tomorrow’s post.<\/p>\n","protected":false},"excerpt":{"rendered":"

This week, I have been exploring the issue of interchange fees, also known as swipe fees. Swipe Fees More On Swipe Fees I have been very eager to make the case for swipe fees in their current form, as I have found much of the merchant propaganda against swipe fees to be so dramatically poor.\u00a0\u00a0\u00a0 […]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[8],"tags":[],"yoast_head":"\nThe Case Against Swipe Fees<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.askmrcreditcard.com\/news\/the-case-agains-swipe-fees\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Case Against Swipe Fees\" \/>\n<meta property=\"og:description\" content=\"This week, I have been exploring the issue of interchange fees, also known as swipe fees. 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