Retailers, represented by the National Retail Foundation, promised that consumers would benefit when retailers, particularly small businesses, were to benefit from regulated interchange (swipe) fees charged by Visa and MasterCard. The regulation, commonly called the “Durbin Amendment to the Dodd-Frank Act,” would lower the cost for businesses who were subject to an effective duopoly between Visa and MasterCard, paying a percentage of every debit card transaction to the processor.
These fees are higher for transactions with any card that is more than just vanilla, and retailers have dealt with this high cost of doing business in an age where an increasing number of transactions are handled electronically mainly by increasing the costs of products overall.
The National Retail Federation claimed last year that consumers would see the benefit of reduced interchange fees. Regulated cards — and not every issuer is subject to this regulation — carry interchange fees with a maximum of 0.05% of the transaction plus $0.21. The standard fee for a non-regulated card (reviewing Visa’s schedule of interchange reimbursement fees as of October 2011 [pdf]) is 1.90% of the transaction plus $0.25 for every swipe of the card.
If retailers intended for the consumer to benefit, the only way for that to happen would be in the form of lower prices. Here are a few comments from representatives of the retail industry, as compiled by the Electronic Payments Coalition:
- “The reform will save each franchisee in the country almost 50% of the cost of a debit transaction, which ultimately will be passed on to the customer… It is simply a fact that lower merchant costs will lead to lower consumer prices.” (Bruce Maples, Chairman, National Coalition of Associations of 7-Eleven Franchisees)
- “Merchants are ready to pass lower swipe fees along to consumers in the form of discounts and other benefits as soon as reform goes into effect…” (Mallory Duncan of the National Retail Federation)
- “Merchants are making a wide variety of plans to pass the savings along to customers who use debit cards, ranging from discounted prices to benefits and increased services such as free delivery at an appliance store…” (National Retail Federation press release)
- “Secondly, to the extent that a merchant receives a benefit, I do believe that from a competitive standpoint, they will bring that through to the consumer.” (Robert Donovan, Corporate VP & U.S. Assistant Treasurer, McDonald’s
If you’ve been shopping throughout the past year, particularly since October 1, 2011 when the regulation went into effect, you probably haven’t noticed prices decreasing. In fact, I would say prices overall, from my anecdotal experience, have continued to rise. Recent research confirms this suspicion, to the tune of a 1.7% increase across a list of common items.
According to a consumer survey conducted by Ipsos Research, only 7% of consumers believe that retailers are passing these savings onto customers. 76% of retailers have increased their prices or kept them constant since October 1, 2011.
At the same time of these increases for customers, retailers have saved $2.28 billion as a result of the regulation. When we discussed this on Consumerism Commentary, most readers didn’t expect retailers to lower prices. Why should they? Small retailers have the opportunity to reduce their costs while not affecting revenue by keeping prices steady. That’s how businesses can survive in difficult times. Large retailers may have healthier profits due to volume, but the ability for large retailers to offer low prices is their strength, and don’t have the margins to reduce prices much.
Could it be possible that these promises of savings for the consumer were promoted by the industry to garner more public support for regulations?