Lower card swipe fees for business, consumer

Posted Saturday, Aug. 24, 2013  comments  Print Reprints
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The cost of doing business in North Texas could start coming down if federal banking regulators heed a U.S. district court ruling and Congress follows the lead of the European Union.

Setting the stage for serious reform, both the federal court and the EU recently moved to reduce the cost merchants have to pay for their customers to swipe credit and debit cards.

In the wake of these two actions, many merchants, including my company Douglass Distributing in Sherman, are urging government officials to return competition and transparency to the credit card industry, something that is sorely lacking today and is why U.S. merchants and consumers pay the highest credit and debit card fees in the world.

The cost is significant — the credit card industry, including the banks that issue cards, made $50 billion last year on swipe fees, the second highest expense for my company and many other merchants, after labor.

Some of that cost, depending upon the merchant, is passed on to consumers through higher prices. So any move to lower the fee will benefit both merchants and consumers.

Americans have always paid higher swipe fees than Europeans, even though the transaction costs are no different.

After studying the issue intensely, EU regulators recently decided that such fees shouldn’t top 0.3 percent of the amount charged to a card. In the U.S., credit card swipe fees are usually 2-3 percent of a transaction. That’s eight to 10 times what European experts have found is fair.

Following the European Commission announcement, a U.S. federal judge ruled in a strongly worded opinion that the Federal Reserve, which regulates banks, has kept debit card swipe fees higher than Congress intended when it passed the Durbin Amendment.

He ordered the Fed back to its calculators to set a much lower and rational debit card swipe fee.

The debit reform law, named after its sponsor, U.S. Sen. Dick Durbin of Illinois, called for debit fees to be “reasonable and proportional” to the banks’ and credit card companies’ cost to transact the customer’s charge.

The Federal Reserve itself found that cost to be 4 cents a swipe, but capped the debit fee at 24 cents — a 600 percent markup! I’m all for making a profit, but one generated by marketplace competition, not price-fixing.

Paying with plastic is convenient, and the owners of systems that make that possible are entitled to be paid.

But Visa and Mastercard, which are run by and for the nation’s biggest banks, together control 80 percent of the electronic payments marketplace. As a direct result of that “duopoly,” they can and do charge businesses fees that are set in secret by the credit card companies.

The banks don’t compete on their fees, agreeing to all charge pretty much the same.

Every dollar in swipe fees above the real cost of a using debit or credit cards is a dollar that businesses can’t use to reduce or hold prices, increase wages or reinvest.

That investment hires new employees, expands existing workers’ hours and buys equipment or inventory, all shots in the arm that our economy very much needs.

The court’s ruling and the EU’s findings are welcome developments, but what’s needed now is prompt action by the Fed to reduce debit card fees and by Congress to ensure that price-fixing ends and competition and transparency are in place to bring credit card swipe fees to levels comparable to those in the European Union.

Bill Douglass is president of Douglass Distributing, a fuel distributor and owner of convenience stores based in Sherman. www.douglassdist.com

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