In July 2012, MasterCard, Visa, and several other credit card companies concluded a case against them that was initiated by retailers who claimed that these credit card companies set swipe fees in an anti-competitive manner.
Although retailers originally wanted swipe fees (these normally range from 1½ to 3 percent) on credit cards lowered by banks, the settlement would instead allow retailers to recover the checkout fees by passing the charge on to consumers. This settlement took effect on the 27th of January 2012, and it will not affect purchases made with debit cards. Retailers who would like to adopt this surcharge will have to inform consumers of the charge. Also, the fee will have to appear on the receipt as its own line item.
So Which Retailers are Implementing this Charge?
Nobody. And here’s why:
Large retailers such as Target find the settlement disagreeable and will continue bearing the costs incurred by credit card processing. Retailers have also pointed out that checkout fees are prohibited in a number of states, including Connecticut, Kansas, Florida, California, Maine, Colorado, Oklahoma, Texas, New York, and Massachusetts. The number of credit card transactions carried out in these states amounts to 40% of the US total. It has also been noted that it will be difficult for retailers to distinguish premium credit cards (which have the highest fees) from all the others. On top of that, it is also relevant that in order to implement surcharges, a number of expensive and time-consuming measures have to be taken. And if that’s not enough, the surcharge itself will be subject to its own swipe fees, thereby increasing the sum of fees collected by credit card companies.
An even stranger feature of the settlement is its provision that American Express customers also pay a surcharge, which would normally be expected only for Visa and MasterCard holders. Merchants who take American Express are contractually obligated not impose surcharges on Amex cardholders, which means they’re unable to comply with the settlement whether they want to or not.
National Retail Federation Senior Vice President and General Counsel Mallory Duncan said,
Could a Merchant Benefit From Recouping These Credit Card Processing Fees?
Swipe fees can be a lot to bear for small, independent businesses, so being able to recoup some of these costs could prove helpful to these businesses. As pointed out above, however, there is a lot of red tape involved in acquiring permission for the surcharge (and that only if it’s allowed in the state they happen to be in). Another possible cost is that of disgruntled customers, who won’t be pleased by the charges. It therefore makes sense that adding a surcharge to a credit card transaction simply isn’t worth the trouble. Loyal customers are the backbone of small businesses, so retailers would rather avoid upsetting them.
For Most Retailers, the Costs Outweigh the Benefits
The conclusion here is that the original idea, which was to lower swipe fees, turned into a settlement that does nothing to reduce fees incurred by retailers. These businesses are now in a position wherein the have to continue to bear the costs of swipe fees, either raising prices to cover them, or adding the surcharge, which could anger customers. The result is that the benefits of accepting credit cards do not justify the costs they impose.
Over the past ten years, credit card swipe fees have gone up threefold, and retailers find it increasingly difficult to cover these costs. Some might offer a cash discount, while others simply have to pass a charge along to customers.
The only reasonable solution for retailers is to find the right payment processing companies with the lowest possible fees, otherwise they simply have to stop taking credit cards, which could be the beginning of the end for small businesses.