The debate over interchange may have reached a new level of hyperbole when legal counsel for the Merchants Payments Coalition said that if Visa Inc. and MasterCard Worldwide were to charge consumers the "swipe fees" they now charge merchants to accept electronic payments, the card brands "would probably go to jail."
Countering such statements, payments industry consultancy The Strawhecker Group published an infographic that lays out the costs of interchange and the benefits interchange fees enable the industry to provide to merchants and consumers. On Feb. 20, 2013, the MPC issued a statement that condemns interchange as a price-fixing scheme that the card brands' network of banks hides from merchants. The MPC claimed that interchange "swipe fees" not only exceed health care costs as the fastest growing expense for merchants, but that interchange represents the second highest operating cost for merchants after labor costs. Additionally, said fees can be as high as 4 percent per transaction in the United States - the highest fees paid in any country in the industrialized world, according to the MPC.
MPC Council Doug Kantor characterized interchange as a secret monopoly operated by the card brands. "Visa and MasterCard have a stranglehold on the market," he said. "They set the fees in secret and banks all charge the same thing rather than competing on price. If they price-fixed consumer fees they would probably go to jail, but because the fee is charged to businesses and hidden they have managed to get away with it."
TSG paints a different picture. The infographic, titled What benefits me by paying a credit card swipe fee?, offers TSG's explanation of what fees merchants pay to accept credit cards, why they're paid, and the benefits the electronic payment system, supported by interchange, provides for merchants and consumers. In the infographic, TSG said the average credit card interchange fee and associated fees total 2.20 percent of a transaction. For a $100 purchase made with a credit card, the merchant receives $97.80. The $2.20 is divvied up on the back-end between the card issuing bank ($1.62), the merchant acquirer ($0.31), the transaction processor ($0.18) and the card brand ($0.09).
TSG said that in exchange for that 2.20 percent, merchants receive the following benefits: increased profits; more efficiency at the POS and in the back office; access to customer analytics useful for loyalty and reward programs; and market access to online, mobile and telephone sales channels. TSG pointed out that these services are not provided in a vacuum. "Like any product or service, credit cards require money to exist," TSG said. "Swipe fees are necessary and cost effective."
It was widely assumed by the payments industry that once reforms to debit card interchange were enacted, as occurred with passage of the Durbin Amendment to the 2010 Dodd-Frank Act, that merchant and consumer advocates would begin to call for reforms of credit card interchange as well.
The MPC said that "little has been done to end the price-fixing of credit card fees." Kantor noted that credit card interchange fees have "skyrocketed" even as banks' operating expenses have fallen. "If Congress would step in and stop the price fixing, U.S. consumers could benefit from reduced swipe fees, as in Europe where they are eight times lower," he said. Once again, the TSG infographic offers an alternative view. TSG said that in Canada, where card transactions are more tightly regulated, consumers typically pay $12 per month for checking accounts. And after interchange reforms were imposed in Australia, fees that banks charge cardholders increased by 22 percent from 2001 to 2004, according to TSG.
The infographic also tackles what happened in the United States after the Durbin Amendment to the Dodd-Frank Act reduced by roughly half the fees that the card brands could charge for debit card transactions. After the amendment's implementation, fees on non-interest bearing checking accounts rose by 25 percent, TSG said. And of the estimated $8 billion in savings that merchants were supposed to pass onto consumers as a consequence of merchants' lowered interchange costs, consumers have not seen most of it, TSG noted. TSG's infographic is at http://library.constantcontact.com/download/get/file/1111273965379-135/TSG+Infographic+-+Credit+Card+Swipe+Fees.pdf.
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