Retailers Taking Up the Charge

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Retailers are arming for battle with credit card companies over “swipe fees” that banks charge for processing transactions.

Even though the digital age has brought down the cost of processing credit card transactions, banks have not dropped “interchange fees” instituted to cover processing costs in the dark ages of analog.

A coalition of retailers, supermarkets, drugstores and other businesses gearing for the fight under the banner Merchants Payments Coalition released a report Sept. 17 that found that Americans pay about $2 in interchange fees for every $100 they spend using credit cards. Retailers pay the fees and factor them into consumer pricing.

The merchants claim the U.S. rate is twice what’s charged in the U.K. and New Zealand, four times the rate in Australia and more than six times the European Union’s cross-border rate.

"If we paid the same low credit- and debit-card swipe fees as consumers in Australia pay, then the net benefit for American consumers would have totaled $125 billion over the last four years," the report says.

While the merchants hope to pressure the Federal Government into passing legislation aimed at either lowering interchange fees or at least allowing merchants to negotiate the rate directly with banks and credit-card networks, critics say the retailers would pocket the difference rather than pass it along to consumers.

"To suggest that American consumers could have saved $125 billion is very misleading," Piper Jaffray analyst Robert Napoli told Time magazine. "Interchange fees are paid by the merchant, and there have been studies done in Australia that said that consumers have not saved a penny by lowering interchange rates — that the merchants have not reduced prices at all."

Consumers might actually suffer under reforms if banks decide to offset the loss by killing rewards programs, raising credit card interest rates or reinstating annual fees.

Bills pending in the House and Senate would let merchants negotiate their interchange fees directly with banks and credit-card networks, and the Government Accountability Office is conducting a six-month study on credit-card interchange fees, which is expected to be completed in November.

-- Submitted by Holly Wagner