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Payment Services, Swipe Fees, Surcharges and Settlements?

Posted by Travis Powers | Fri, Aug 10, 2012 @ 05:00 PM

credit card lawsuitSome of our check guarantee merchants have asked us about the Visa-MasterCard vs. Merchants Swipe-Fee Antitrust settlement. As payment providers for over twenty-five years, we've seen a lot of changes in the payment industry - some good, some bad and a little of both. How this one plays out for consumers and merchants is still unclear and the results probably won't be in for awhile. As the story unfolds, though, here's a little information on swipe fees and what the settlement could mean for retailers and their customers.

Litigation on what has become the largest federal antitrust lawsuit in U.S. history started in 2005. The lawsuit was filed on behalf of seven million merchants who claimed that MasterCard and Visa had colluded with banks to eliminate competition and increase the fees of credit card transactions. These interchange fees, often referred to as swipe fees, are some of the costs that merchants pay the credit card network to process the transaction. These fees compensate for transaction-related costs and for settling and receiving funds. They usually range from 1-3 percent of a transaction. Over the years these fees have risen as the credit card networks have set up reward programs and perks for card holders. 

For merchants, the proposed settlement gives them the ability to pass this interchange fee back to their customers. Up until now, the card companies had rules against surcharging. The interchange fee was part of the cost of business and, with rising fees and lower margins, thispaying with credit put a strain on some merchants, especially as customers began to use their credit cards for very small purchases. The settlement lifts the "no surcharging rule" and allows merchants to pass the fee on to customers, providing the surcharge does not exceed the actual fee and providing they are not doing business in a state that prohibits it. Several states, including California, New York, and Texas, have laws in place against surcharging. This settlement doesn't change those laws.

Though the settlement was announced in July and could bring the end to what has been a very long and expensive lawsuit, major retailers are opposed to the swipe fee settlement, such as Wal-Mart, Target and the National Association of Convenience Stores. The settlement is subject to court approval and may not become official until next year. Though the card companies have agreed to pay huge amounts (over $6 billion) and reduce fees, the settlement makes it harder for merchants to take legal action against the card companies in the future.

So back to surcharges . . . will merchants charge them and customers accept them? Some merchants will happily charge them. However, many in the retail industry say that merchants will have a difficult time convincing their customers to accept surcharging, particularly larger, chain merchants. A retailer who charges checkout fees could lose customers to competitors. There are also logistical considerations, such as added time at checkout, the necessary signage informing customers of the charge and additional employee training. Others say that merchants will push customers over to debit, which does not carry the same fees. Each retailer will need to decide whether the potential cost savings are enough to outweigh these factors.

For consumers, the threat of having to pay more to use credit cards could change payment behavior. Consumers have multiple payment methods available that don't use the interchange system and are not subject to these fees. Checks, debit and some emerging payment systems do not carry these fees and consumers may choose to migrate to these payment methods. The recent Federal Reserve payments study showed a drop in credit card use over the last few years and an increase in debit and ACH.

As check payment providers, we don't charge interchange fees or make money from interchange fees, (though we do charge other fees, admittedly). We have watched the lawsuit carefully, though, because credit card payments are a major concern of our industry, our agents and our merchants and hopefully these changes will be of benefit to all concerned. This was a big, long and, as expected, expensive lawsuit and the total impact of the settlement is still unclear.  What is becoming clear, is how important payment choice is to our merchants and customers.

I'd like to know what you think of the settlement and the possibility of surcharges.  Please comment below on how this impacts you and your business.
 

Topics: Retail

Written by Travis Powers