Is the $6B settlement against Visa and MasterCard swipe fees good for the independent retailer?
A settlement was reached in a class action suit resulting in Visa, MasterCard and other banks having to pay $6B for conspiring to fix fees that stores pay to accept credit cards. For eight months the credit cards companies will reduce the “swipe fees” retailers pay on purchases where credit cards are used. As a result of the deal stores will now be able to charge customers more for credit card purchases which was prohibited except in gas stations. Merchants will have to inform customers of this up charge at the checkout counter.
So let’s dig into this bit to determine if this is really a good deal. First of all American Express and Discover are not part of the settlement. To me the most important aspect of this is that the moratorium is only for eight months. Considering the credit card companies make in excess of $25B a year on interchange fees, eight months and $6B seems like a great deal for the banks. For a retailer to try to figure out credit card exchange rates and related fees is nearly impossible. There are so many up charges based on reward cards and other unknown factors. This settlement did nothing to bring clarity to that issue. Now with regard to the ability for retailers to charge more for credit card purchases, this is a slippery slope. There are a myriad of issues that the independent retail will face if chooses this approach. Will it alienate a good customer, will it push people to use cash or debt to name a few of the issues. Gas station can get away with it since most do it so there is no competitive disadvantage and most people realize they make pennies per gallon. This logic doesn’t work in traditional retail. If this pushes more people to use cash or debt if will certainly reduce the average sale. One of the major arguments credit card processors have made to justify their fees is that consumers will spend more when using a credit card rather than digging into their wallets and spending cards. Since this was just announced there will be more information forthcoming but it’s an important issue that will the independent retailer will have to think about.