It will be at least a month until we know what the final financial overhaul bill looks like and exactly what proposals are being made, but one smaller provision that exists in similar formats in both pieces of legislation is a change to the way debit and credit cards are handled in stores.
Currently, the companies that manage the networks that allow stores to accept cards as payment, mostly Visa and to a lesser extent Mastercard, can charge whatever they feel is fair for the service. This is often called a swipe fee, and is paid for by a percentage of the cost of the item being purchased, usually between 2 and 3 percent. Also called the interchange fee, American merchants deal with a higher percentage than any other country.
Also, it’s currently illegal for stores to set a minimum purchase amount to its customers who want to pay with plastic. You and I know that many stores do this anyway, but it’s technically not allowed.
In both the House and Senate versions of the upcoming bill, the network operators will be limited to charging a reasonable and proportional fee, instead. Nobody has yet written down what would make the fee “reasonable,” but in this case, “proportional” means it would have to be based directly on how much it actually costs to operate the machines and the network.
In 2009, $48 billion in revenue was generated by interchange fees, but it cost only 20% of that to run the network. Compare that with Australia, which charges a maximum of 0.05% for each transaction, and whose merchant network shows no signs of crumbling.
The other likely significant change is a new ability for retailers to offer discounts to customers using cash or to set minimum purchase amounts to customers using plastic.
If these changes were made tomorrow, do you think retailers would see this as an opportunity to lower prices?
Reform Credit Card Swipe Fees, Robert Shapiro, Forbes.com, February 22, 2010