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New bill could save retailers from paying fees when customers use credit cards: NPR

Retailers complain that credit card companies have the upper hand – charging them “swipe fees” when customers use cards. A bipartisan bill is in the works that could change this dynamic.



AYESHA RASCOE, HOST:

The next time you pull out your credit card to buy something, know that you’re at the epicenter of a great battle. It’s between where you shop and the credit card companies – mainly Visa and MasterCard. To explain, we’ll now turn to NPR’s Alina Selyukh, who covers retail, and NPR’s Chris Arnold, who tracks personal finance. Thank you both for being here.

CHRIS ARNOLD, BYLINE: Hi, Ayesha.

ALINA SELYUKH, BYLINE: Hello, hello.

RASCOE: So what is this great battle, and what is it over?

ARNOLD: Okay, so what’s happening is there could be a big change in how credit cards work. So every time you pull out your card and swipe it, your money travels through this, like, underground – well, it’s not really underground, but it’s, like, this financial plumbing system , and the store has to pay a fee that you don’t really see.

SELYUKH: But retailers definitely see it. In all the years I’ve talked to retailers, this is, like, their #1 frustration. It’s swipe fees, also known as interchange fees. Stores pay it to credit card companies, which are almost always Visa or MasterCard.

ARNOLD: And actually, if you have a friend who runs a small business, just try to talk about this whole sweeping fee thing and see what happens because, I mean, your ears will be full. Store owners hate it because they end up paying so much money.

RASCOE: Alright. So, Alina, these retailers you’re talking to, why do they hate these fees so much?

SELYUKH: They add up. On average, each transaction means fees of just under 2%. It’s an average. Maybe that doesn’t sound that big, but if you’re a small grocer, maybe your total profit margin could be 5%, you know? I spoke to Patty Reardon who runs the Smoke Stack Hobby Shop in Lancaster, Ohio, and she says her store pays nearly the same amount in sweeping fees each month as she does to rent out her entire store.

PATTY REARDON: Right now that’s the third biggest cost we have – payroll, rent and sweeping fees. People refer to him as an employee who cannot be hired.

SELYUKH: You know, thousands of dollars in sweeping fees. Many retailers eventually have to pass that cost on to shoppers, so they might raise prices. The National Retail Federation maintains that Visa and MasterCard are essentially a duopoly. The group has been lobbying lawmakers to reduce sweeping fees for years. And now there is a bipartisan bill in the Senate that attempts to fix this problem.

RASCOE: Well, what exactly would this bill do?

SELYUKH: So the goal is to force more competition. For each credit card, banks would be required to give stores a choice between two payment networks. So not just Visa or MasterCard, but maybe Discover or a small company – like, there’s one called SHAZAM. And the idea is that maybe this forced second choice would, over time, force everyone to compete on price, maybe lower those fees. A bunch of retailers are behind this bill, including giants like Walmart and Target. And this week, they sent a flurry of letters of support.

RASCOE: But, Chris, would that change anything for you and me as we use our credit cards? I use mine all the time.

ARNOLD: Well, that depends on who you’re talking to, doesn’t it? So the trade group that represents Visa and MasterCard, they say, whoa, whoa, whoa, that would be very, very bad. We don’t want to do that. And one thing that they think would happen is, you know, the rewards programs – which a lot of people love – if that swipe fee goes down, like the amount of money and the revenue from it, that could kill all these points and rewards programs that give you money on your card and all these different things. So we spoke to Jeff Tassi of the Electronic Payments Coalition, which represents card companies. He says a portion of those swipe fees help pay for those rewards programs.

JEFF TASSI: There will be no money to pay for these programs, and most rewards users will really miss these things. They’re going to be very unhappy, and it’s not a vain – like some kind of empty threat or bluster that they’re leaving. I mean, they have to be paid as part of the system.

ARNOLD: So that might sound pretty bad – right? – like, don’t take away my loyalty points, you know?

RASCOE: Yeah. I mean, people aren’t going to like it.

ARNOLD: No, it’s – everyone considers it free money. But that’s what the credit card companies say. Consumer groups say no it’s actually bluster and threats and it wouldn’t happen because banks are making billions of dollars off credit cards with late fees and annual fees and rates high interest. I spoke to Mike Calhoun of the Center for Responsible Lending – it’s a nonprofit watchdog group – and he says, okay, well, if they make less on swipe fees, that might affect some of the rewards programs, but these are not going to go away.

MIKE CALHOUN: If this bill passes, it won’t be the end of rewards programs. They are one of the most important ways for credit card companies to attract and retain some of their most profitable customers. And so they will continue to use that as a way to get those customers and keep them.

SELYUKH: And in fact, proponents of the bill often point to Europe and Australia, for example, which have regulated swipe fees – so they’re lower than the US – and their rewards programs seem be acceptable.

RASCOE: It’s Alina Selukh and Chris Arnold from NPR. Thank you very much for explaining all of this.

ARNOLD: Thank you, Ayesha.

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