April 10, 2012
A major merchant trade group on Monday fired an opening shot in what is likely to be a long, hard battle over credit card acceptance costs. The NACS, an association for convenience-store operators, released a report claiming that card discount fees in general—and especially credit card fees--are partly responsible for the high price of gasoline.
According to the report, which the Alexandria, Va.-based trade group is distributing on Capitol Hill and to the press, discount fees amounted to about 7 cents out of the average per-gallon gas price of $3.94 on April 1. Credit card fees, however, come to as much as a dime per gallon, the report says. Since discount fees are based on interchange pricing, which typically includes both fixed and percentage-based components, they rise as the amount of the sale rises. Merchants pay discount fees to their acquirers, which then pay interchange to card issuers.
One critic of the report, however, says card interchange has nothing to do with rising pump prices, which, he says, are driven instead by supply and demand. The report’s claims are “hogwash,” says Eric Grover, principle of Intrepid Ventures, a payments consultancy in Minden, Nev.
The NACS report comes as gas prices have risen dramatically nationwide in recent weeks. The average per-gallon price shot up 15 cents in March alone, according to the NACS. It also comes as the banking industry is adjusting to new regulations for the nation’s largest banks that took effect last fall and that cap debit card interchange at a level that is roughly half of what it had been before.
The price caps, however, do not apply to credit card transactions, leading many observers to expect retail groups to begin lobbying for rules to rein in interchange pricing for credit. “The public-policy partisans are quite keen to go after credit cards,” notes Grover.
Lyle Beckwith, senior vice president at the NACS for government relations, says that while the report is aimed squarely at credit card fees, the organization is not recommending any particular policy solution. He says the report is meant to uncover what the group calls the “hidden” cost imposed on both consumers and c-store operators by card-acceptance fees, which are buried in the price of goods. “We’re pointing out the scope of the problem,” Beckwith tells Digital Transactions News. “The lack of transparency [in card pricing] leads to a lack of competition, which leads to market power for Visa and MasterCard.”
Indeed, he says, rising gas prices have thrown the spotlight on card-acceptance costs as higher pump prices mean less profit for operators. The c-store industry as a whole, Beckwith says, pays more in card-acceptance fees than it earns in profits. “In total, for all sales at our stores, the amount paid to the credit card industry is about double what we earned in profits” in 2011, he maintains. For gasoline in particular, the problem is exacerbated because margins are compressed as wholesale prices rise, Beckwith says, adding that competitive forces prevent operators from passing on the full weight of the cost increases.
“Swipe fees are running amok,” Beckwith says, using a term for discount fees that interchange opponents popularized during the debate over the debit card pricing controls, which were made law by the Durbin Amendment to the Dodd-Frank Act of 2010. “And it’s hard to know the scope of the problem when the fees are hidden.”
Grover, however, points out that network pricing on gasoline hasn’t budged in recent years. Indeed, Visa Inc.’s credit card interchange rate for gas sales has remained steady at 1.15% plus 25 cents since 2008. And a spokesman for MasterCard says the network several years ago capped credit card interchange on transactions at the pump over $50 in an effort to stem the effect of rising gas prices at that time. “We’ve been working very closely with the industry,” the spokesman argues.
SPECIAL FEATURERead Digital Transactions Online