While credit and debit card purchases are ever-present, each swipe comes at a price few consumers are aware of; one that ultimately costs retailers and their customers tens of billions of dollars each year.
Every time a customer uses their debit card to make a purchase, the merchant is required to pay a fee to the issuing bank. For many merchants, swipe fees are among their highest costs of doing business-- often the second or third largest expense after overhead such as labor and operations. Merchants in the United States pay the highest “swipe fees” in the world.
Prior to 2010, the cost for merchants that accepted debit cards skyrocketed. In a nightmare scenario, this forced many merchants which operate on very small margins, to raise prices to cover the expense.
The merchant community stood up against big banks and fought back. Thanks to reforms passed by Congress--supported by both Republicans and Democrats--swipe fees must now be deemed “reasonable and proportionate.” More importantly, these reforms brought competition into the debit market by providing at least two routing options to challenge the global card brands.
Recently the Federal Reserve released their biannual study on the debit card market and found once again the cost for clearing, authorizing and settling debit transactions dropped from 4.6 cents to 4.2 cents from 2013. When the Federal Reserve conducted their initial survey in 2011 the average cost was 9.4 cents. The market is seeing a decrease in cost because of innovation in the payment ecosystem.
An analysis released by economist Robert J. Shapiro in 2013 concluded that since swipe fee reform was enacted, consumers and merchants are benefiting from the competition. The study found that the benefits included $5.8 billion in lower prices for consumers. These savings have helped merchants add jobs and continue to grow. Yet, despite hard evidence, Congress is considering stripping those savings and sending billions of dollars back to Wells Fargo, Bank of America.
Repealing debit swipe fee reform will give free reign to big banks and card companies looking to transfer billions of dollars from consumers and retailers back to their bottom lines. Wall Street and their Washington allies are telling Congress these vital reforms are hurting their bottom line yet the banking industry collected $18.41 billion in 2015.
Recent polling suggests that it isn’t just retailers who think that a giant giveaway to the biggest banks is a bad idea. Over 76 percent of voters believe big banks received a bailout in 2008, while millions of Americans suffered. In fact, 67 percent of voters think big banks are already taking advantage of local retailers and more than half of them reflexively dislike the idea of swipe fees altogether. It’s clear to see that Wall Street's bad acts are not forgotten. Voters are on the side of Main Street businesses, not big banks and the Visa/MasterCard duopoly.
The fact is, retailers swipe right on competition. It is what ensures that customers get the products and services they need at great prices. While America’s biggest card companies and banks ask for yet another hand out, Congress should listen to their constituents and side with Main Street and our customers.
Jennifer Safavian is the executive vice president of government affairs for the Retail Industry Leaders Association.
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