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More information on the Tester Bill and Interchange talking points follow below.
The Tester bill to delay the Federal Reserve’s rule on swipe fees for two years ignores the myriad of problems with swipe fees in order to let the nation’s largest banks sweep in extra revenue. A two-year delay costs over $24 billion for consumers and almost 200,000 new jobs. We know that the only parties who benefit from a two-year delay are the biggest banks that are allowed to continue price-fixing.
Particular problems with the bill include:
It Calls for a Flawed Study
- The study does not address the 95,000 new jobs per year that would be created through reduced interchange.
- The study does not address what is best for the economy as a whole.
- The study does not address what is best for the payments system as a whole.
- The bill seeks a two-year delay based on presumptions about a rule that hasn’t even been finalized yet. Studies review things that are happening. The bill asks banking regulators to speculate on what might happen. A legitimate study would examine what happens after the Federal Rule takes effect.
- The study is to be conducted by banking regulators who are not qualified to opine on merchants’ businesses and are questionably situated to study consumer impact.
It Ignores Current Problems
- The bill allows banks to continue price-fixing for two more years.
- The bill ignores that delay of the Federal rule costs American consumers $1 billion per month.
- The bill ignores many studies that have already shown that current swipe fees hurt consumers:
- Consumers pay for high swipe fees today through increased prices; and
- Low-income consumers are subsidizing high-income consumers.
- The bill ignores that current swipe fees hurt Main Street businesses.
- Card fees are the second highest operating cost for most merchants – only labor is higher; the fees cost more than rent and utilities.
- Card fees are the fastest growing business expense for U.S. merchants – they have been increasing faster than health care costs for the past decade.
It Ignores a World of Experience
- Debit card systems around the world offer a wealth of information regarding swipe fees.
- Seven of the eight countries in the world with the highest per capita debit card usage have no swipe fees at all.
- These systems with zero swipe fees are better off than the U.S. system with far more product and fraud-prevention innovations.
- High debit swipe fees that result from banks’ price-fixing with card networks hurt competition, innovation and economies.
- Every nation that has investigated these questions has reformed swipe fees (or is still actively investigating).
- Visa and MasterCard voluntarily agreed to lower debit swipe fee rates in Europe to a lower level than what the Federal Reserve has proposed for the U.S.
- Relief from excessive debit card swipe fees is a top priority for thousands of retailers across the nation and it is imperative these reforms go into effect this year. Over 1,500 companies and associations signed a letter to Federal Reserve Board Chairman Ben Bernanke highlighting the importance of debit card reforms.
- Debit interchange fees are completely hidden so customers don’t even know they are paying interchange even though interchange fees – as with any other high operating costs – impact the price of all goods and services.
- Retail customers will benefit from debit interchange fee reforms because retail is a highly competitive, low-margin industry in which merchants compete on prices and service everyday.
- Debit card interchange swipe fees have continued to go up since the passage of debit card fee reforms last summer, and there’s nothing to keep them from continuing to rise until reforms are implemented.
- Now, the big card companies are trying to scare the Federal Reserve and Congress into delaying these reforms for up to 2 years or more than $100 billion in swipe fees later.
- Fee increases are completely unpredictable. We never know exactly when or by how much the fees will go up, which creates a great deal of uncertainty for our business.
- Uncertainty about debit card swipe fee rates makes it difficult for businesses to plan ahead, budget and make hiring decisions.
- Currently, the card networks – Visa and MasterCard – set interchange fees and terms of card acceptance. This is unlike any other business relationship we have in that it’s not a relationship at all.
- Despite increased debit card volume and improved technology efficiency we have seen rates go up. In a truly competitive market, we would expect these costs to go down, but the networks set interchange prices higher and higher because the merchant is not the network’s customer, rather the card issuer is, and that card issuer makes more money the higher the interchange fee is.
- Interchange fees are roughly 80 to 90% of total debit card acceptance costs. Other fees paid by merchants include network and processing fees. You may hear merchants can negotiate debit card costs, but the only negotiable costs are the processing fees. Like interchange, network fees are also arbitrarily set by Visa and MasterCard in a take-it-or-leave-it fashion.
- The interchange fee is set by the networks and is the same for every financial institution. This is price-fixing.
- By raising interchange rates and creating exclusive arrangements with financial institutions in which their cards only have a single network option, the major networks have negatively run existing lower cost networks out of the market and have created extreme barriers to entry for any new debit networks.
- According to the Nilson Report (Issue 947, April 2010), the debit product market share among the top 50 issuers was 59.8% Signature, 35.4% PIN, and 4.8% Prepaid. Visa cards contributed to 78.4% of signature-based purchase volume while MasterCard cards contributed the remaining 21.6%.
- With signature debit accounting for almost 60% of the debit product market share among the top 50 issuers and with one company controlling over 75% of the signature market, it is imperative that at least two signature options be available on each card in order for any existing or new network to be able to compete with such extensive market share.
- There is no payment guarantee when a customer uses a debit card in one of our stores. The card network and issuer is able to reverse the charge for a handful of reasons including processing errors or fraud. This is called a chargeback. When this happens the merchant may never end up getting paid for the goods purchased from their store. Then they are out the money and the merchandise.
- According to information from the Fed’s interchange survey process, merchants bear 43% of all fraud losses in the debit card market. Additionally, merchants assume approximately 76 percent of signature debit card fraud for card-not-present transactions, such as Internet purchases.
- The Fed estimates that industry-wide fraud losses to all parties of a debit card transaction were approximately $1.36 billion in 2009. About $1.15 billion of these losses arose from signature debit card transactions and about $200 million arose from PIN debit card transactions. PIN debit cards are much more secure than signature because in order to use a PIN debit card the card user has to know the PIN. This second level of user authentication is not required for signature debit purchases.
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