The Borrowers
Merchants take a swipe at card fees
Every time you charge your Big Gulp at 7-Eleven, a credit card company swallows part of the profit. But Slurpee slingers have had enough of the merchant fees. Stacey Vanek-Smith reports.
A 7-Eleven petition against credit card fees. (Stacey Vanek-Smith / Marketplace)
Links
7-Eleven franchisee Gunu Singh. She says if it weren't for the fees she pays to credit card companies, she could hire another employee.
Long Nguyen, 28, owns this 7-Eleven franchise in Santa Clarita, Calif. He's collected roughly 1,000 signatures from customers.
Bill Horvath, owner of software company Dox Systems, Toledo, Ohio.
Kim White, handbag designer, Los Angeles.
TEXT OF STORY
Bob Moon: If you've dropped by your local 7-Eleven lately, you might have noticed something. Past the glossy gossip rags and energy shots, a petition. The convenience chain is protesting the fees the credit card companies charge every time we use plastic. Small business owners across the country say those hidden charges are talking a big gulp of their profits.
Marketplace's Stacey Vanek-Smith reports.
Stacey Vanek-Smith: It's about 400 degrees in downtown Los Angeles today. Perfect Slurpee weather.
[Sound of Vanek-Smith filling a Slurpee cup.
7-Eleven cashier: $1.53
I have cash somewhere in the greater depths of my purse. But it's easier to just swipe my card. I don't even have to sign.
Cashier: Thank you.
Actually, it's Visa that should be thanking me. 7-Eleven just had to pay them about 11 cents so I could charge my Slurpee.
It's called an interchange fee and it works like this: Every time I use my Visa card, the merchant who takes it, pays the credit card company a flat fee, usually about a dime. The card company also gets about 2 percent of the purchase price. So, for that $1.53 Slurpee, 7-Eleven paid Visa 11 cents, that's almost 10 percent of the price. Gunu Singh owns the 7-Eleven.
Gunu Singh: This store alone pays over $28,000 in credit card fees. And for us, that would translate into hiring another person from the community.
Singh says the fees aren't just expensive, they're extremely confusing. Visa's interchange rate is about 1 percent, plus the 10 cent flat fee. American Express charges about 1.5 percent, plus its flat fee. Rewards cards have higher fees; debit cards have lower fees.
Jeff Lenard is with the National Association of Convenience Stores. He says those fees totaled $48 billion last year.
Jeff Lenard: The credit card companies get together twice a year, they say, "Okay, this is the rate for this, this is the rate for this. If you don't like it, don't take 'em."
Interchange fees have tripled since 2002. And retailers, who have already been hammered by the recession, are now seeing interchange fees eating in to what little profits the have left, says Mallory Duncan, with the National Retail Federation.
Mallory Duncan: After you take out the cost of merchandise, rent, employees, benefits and all the other costs that go into running a retail store, the typical profit margin is 2 percent. That means most retailers only take home $2 on $100 of sales. Now, the card companies are asking for that same $2.
In his 7-Eleven in Santa Clara, Calif., franchisee Long Nuygen has already gotten about a thousand customers to sign his petition protesting interchange fees. He says it's easy to make his case, once customers realize they have something at stake.
Long Nuygen: "Is it really going to affect me?" That's their main question. And I'm like, look, it does, at some point, I have to pass on the goods. Now your milk costs more, because I have to make these margins somewhere.
But these merchants are leaving something out of the equation, says Peter Garrucio, spokesman for American Bankers Association, which represents credit card issuers.
Peter Garrucio: The key to remember or realize is the enormous benefit that merchants get from accepting plastic.
Garrucio points out that taking cards brings business to retailers and the banks that issue the cards take on the risk of the purchase. So if I don't pay my Visa bill, 7-Eleven still gets the money for my Slurpee.
There's legislation in the works that might let 7-Eleven keep more of that money. Congress is looking in to interchange fees and the Senate has introduced anti-trust legislation aimed at credit cards.
Justin Rose: I hate those credit card fees. They jack up the prices on food and drinks and chips and everything else in the store.
That's shopper Justin Rose. He said he's signed petitions at several 7-Elevens. 7-Eleven hopes to deliver a million signatures, including several from Justin, to Capital Hill next month.
I'm Stacey Vanek-Smith for Marketplace Money.
Comments from merchants in our Public Insight Network:
Kristina Runciman, Kingsport, Tenn., Lifeforce Glass, Inc. Accepts Mastercard, Visa.
We no longer take American Express. We tried it for a while because we had one customer that said in order to do business with his numerous stores (we're wholesalers) we had to take American Express. The fees were astounding. The customer didn't do the volume he'd promised, and we cancelled. No one else was surprised. Few of our customers (retail stores) take it.
I had a short, very unfortunate stint with US Bank Card. The sales rep was an acquaintance of mine and he gave me the rate, the cancellation policy and the fees, all in writing and all incorrect. Although the rate I was promised was 1.99%, what I actually got charged was more than double that. Then there were monthly charges and "gateway" fees. I was told I was in a three-year contract (I didn't know that) and could not cancel the account. These all came directly out of my checking account, there was no option not to pay it. Complaining to the customer service reps was hopeless. Wait times were 20 minutes and up. When I asked for the supervisor's name, they could only give a first name. I had to complain to the Better Business Bureau in their city before the account was cancelled.
Sean Harper, Chicago. TSS-Radio and TransFS. Accepts Visa, Mastercard, Discover, American Express.
For Visa and Mastercard we are charged:
- Interchange rate (goes to credit card issuing banks) -- around 1.90% on average.
- Processing markup (goes to processor) -- this is around 0.30% on average.
- Assessments (goes to Visa/ Mastercard) -- around 0.09%.
- For American Express we pay 3.5%, more than the 2.3% average we pay for a Visa or Mastercard transaction. Discover is about the same price as Visa or Mastercard.
The cost of accepting Visa and Mastercard keeps going up as more and more of the cards in circulation are rewards cards.
For a few days we stopped accepting Amex. We measured the sales loss, which was not significant, but we had to deal with so many questions from customers that it wasn't worth our time. Also, the reduction in American Express volume was offset by an increase in Visa/Mastercard rewards and business cards, which are much more expensive than average. Most people don't know that there is a wide range in the cost of Visa/Mastercard cards depending on the actual card.... The monetary savings were not worthwhile, so we started accepting Amex again.
Kim White, handbag designer, Los Angeles. Accepts Mastercard, Visa.
I only accept Mastercard and Visa because American Express charges me almost 4% processing fees (vs. 1.9% for Mastercard or Visa). I've lost a few customers because of it, because there is so much incentive to people to use their Amex -- but it's on the back of the processor!
Sri Narra , gas station owner, Dalton, Ga. Accepts Mastercard, Visa, American Express, Discover.
I pay more in credit-card fees than I take home from working 24/7 in my gas station. It is the single-largest expense after payroll. Now electricity is catching up.
The biggest issue is customers are hurting and cannot afford to go up on prices. The second biggest issue is with chain gas stations (Pantry, etc) that seem to be built on a business model of going bankrupt every seven years. Small biz is a living hell. Credit card fees are horrid and we cannot do a darn thing about it.
A large proportion of my meager retirement savings is in credit-card stocks.... If you cannot beat them, might as well join them -- right?
Bill Horvath, owner of software company Dox Systems , Toledo, Ohio. Accepts Visa, Mastercard, American Express, Discover.
The fee schedule is complicated(!) and varies greatly depending on the card used, whether it's a rewards card, the method used to accept the charge, etc. We haven't refused to accept cards on the basis of fees so far, because what else can we do? They've got us where they want us. If we want our customers to pay us, we HAVE to accept their credit cards.
We switched vendors . . . a few weeks ago. The salesman told us we wouldn't have to pay for the new terminal he provided, and took our old one. Sure enough, the new vendor charged us over $300 for the new terminal, and claims that our salesman shouldn't have taken the old one, and, in any case, that he never turned in. We're still waiting for him to get back to us.
Have you had similar experiences with credit card companies?
Post your comments below:
Comments
Comment | Refresh
08/06/2009
I'm surprised no one mentioned the other costs involved when a merchant accepts credit cards: certification of compliance with Payment Card Industry Data Security Standards. Not only does the merchant have to pay someone to certify them, but they could end up spending thousands of dollars on monitoring services, scanning services, and other security enhancements that are required in the standard.
https://www.pcisecuritystandards.org/
I also heard from our processor that if we are not compliant with these rules by 2010 MasterCard will start punishing to the tune of $10,000, doubling every quarter that we are not certified compliant. (Total cost could be $150,000 by the end of the year.)
Interchange charges are just the tip of the iceberg...
From Kankakee, IL, 08/05/2009
For the person who mentioned that the merchants should simply offer a "cash discount". Undoubtedly this has been thought of, simply look at any Pilot gas station. Against Visa/MC rules, they offer a cash discount. By offering a cash discount, you would theoretically be "prejudiced against" the Visa/MC cardholder, the person the company alleges to protect. Therefore, especially if you are a small merchant, and you get caught doing this, you will lose you will be TMF's and no longer be allowed a merchant contract to accept those cards AT ALL. It is proven that sales volume increases by 30% at businesses who offer credit cards. Which is why so many do. The fees are quite high. But, what is the " cost" of doing business? Their is a cost to the "loan", which is ultimately what a credit card is. This cost has gone up with so many people defaulting rather than paying their bills. I am confident that they continue to make a substantial profit ( Visa MasterCard). But, they are brands, and not companies. They are actually several banks. They are the true winners. They charge you interest to give YOU the loan. The charge the merchant to ACCEPT the loan. The bank then gives you a loan to pay off your credit card loan;) And people wonder why they say bankers run the world.
Finally, some agencies, particularly in the government sector, have opted to assess convenience fees to those who choose to pay with their credit card. This allows the agency to receive 100% of their funds, which is in accordance with state law, but they are also able to offer the convenience of accepting credit cards. Unfortunately, Visa has come down on companies who provide this service and further complicated matters with limited, and SELECTIVE enforcement for their rules.
From Kankakee, IL, 08/05/2009
For the person who mentioned that the merchants should simply offer a "cash discount". Undoubtedly this has been thought of, simply look at any Pilot gas station. Against Visa/MC rules, they offer a cash discount. By offering a cash discount, you would theoretically be "prejudiced against" the Visa/MC cardholder, the person the company alleges to protect. Therefore, especially if you are a small merchant, and you get caught doing this, you will lose you will be TMF's and no longer be allowed a merchant contract to accept those cards AT ALL. It is proven that sales volume increases by 30% at businesses who offer credit cards. Which is why so many do. The fees are quite high. But, what is the " cost" of doing business? Their is a cost to the "loan", which is ultimately what a credit card is. This cost has gone up with so many people defaulting rather than paying their bills. I am confident that they continue to make a substantial profit ( Visa MasterCard). But, they are brands, and not companies. They are actually several banks. They are the true winners. They charge you interest to give YOU the loan. The charge the merchant to ACCEPT the loan. The bank then gives you a loan to pay off your credit card loan;) And people wonder why they say bankers run the world.
Finally, some agencies, particularly in the government sector, have opted to assess convenience fees to those who choose to pay with their credit card. This allows the agency to receive 100% of their funds, which is in accordance with state law, but they are also able to offer the convenience of accepting credit cards. Unfortunately, Visa has come down on companies who provide this service and further complicated matters with limited, and SELECTIVE enforcement for their rules.
From Omaha, NE, 07/29/2009
Why aren't more retailers exploring alternative payment options like PayPal? Although PayPal's niche is ecommerce, it's a solution every small business needs for flexibility, reduced fees and increased convenience for consumers. Brick and mortar folks need to think outside the box and look at growing online payment trends that can apply to their business.
From Portage, MI, 07/28/2009
The only solution is to provide legislation. I have no reason to change the Status quo. For regular card users like me, I am getting a net benefit from the card. I get reward points and free trips, but the cost of the credit card transaction is spread across all buyers. So I get subsidized travel paid for by the buyers who use cash and debt cards. While horribly unfair, it work well for me. For those who are surprised, why do you think they run all those expensive Visa commercials?
From Sacramento, CA, 07/27/2009
Interchange fees are not "just another bank fee." This is a part of 7-11 and the retailers mis-information strategy. This "strategy" is being led by Best Buy, WalMart, and several other mega retail chains. They want the public to believe that "interchange fees" are credt card fees. THEY ARE NOT.
NPR needs to do a follow up on what interchange acutally is.
Interchange is a fee that merchants pay for the convenience of up front payment and almost seemingless transaction between a two financial insitutions and VISA/MasterCard or another processor.
Retailers want their accounts to be credited instantly, but do not want to pay for the transaction.
I challenge NPR and Marketplace to conduct a follow-up story about what interchange actually is--and go to a small financial institution such as as credit union to find out the truth about interchange.
From Dalton, GA, 07/27/2009
Ideally I would love to have an line item on the bill stating credit card fee and list the amount out clearly (just like sales tax or like).
That way people paying with cash get their discount. And people can evaluate the cost of convenience of paying with a card.
But this will be in violation of every single credit card contract I have seen till date.
No one disputes right of credit card companies to make a profit. Its when the industry gets together and keep a system in place (via contracts and such) that has nothing to do with cost to run it, it becomes an issue.
As to getting a free lunch with regards to credit card fees or anything else - the bill always gets paid one way or other.
In this situation, we can either paying a few cents every time we swipe a card or ones retirement fund taking a hit on some stock every couple of years.
From Richmond, VA, 07/26/2009
Lynette made excellent argument over your story. Credit card fee is not hurting merchants, but it is hurting customers as they are the one who is indirectly paying for it. If merchants start giving cash discount, then we, the customers, will happily pay with cash. But it seems they , merchants, are getting over greedy by asking credit card companies to give away one of their source of income and increase their own margin. One thing to note is - this protest came around at the time when people are quite unhappy with credit card companies due to change in their interest rate for something that they bought that they can't pay for. This gives their 'people' at DC an advantage over credit card companies.
In future, please cover customer aspect of the story as they are the one who listens to your 'stories' the most.
From St. Paul, MN, 07/26/2009
One way most if not all credit card companies make a lot of money is the interest rates they charge which, at times, can be almost usury. If you want to complain - good luck. Most companies have billing offices located in states with favorable laws and regulations which usually is NOT the state of their home office. If one tries to file a complaint with the Attorney General, then the complaint must be filed in the state from which your statement was sent. If the laws were changed so that the laws of the state in which the card holder lives took precedence, then the problem could be resolved in favor of the person filing the complaint.
From Greensboro, NC, 07/26/2009
I make no apologies for being the type small business person who shops for the best deals, and that includes merchant processing costs. I have found the best deal to be through Costco! By far. Yes, Costco Wholesale. Sure, it requires becoming an "Executive member" with annual dues of $100 per year but you really do get relatively good rates for processing credit cards.
I still have grips however. My 28 year-old business have NEVER had a chargeback. Not one. But despite that, we are charged an additional !% point because "the cardholder is not present." (Our orders are from repeat customers who order our courses by mail or by Internet downloading.) We would save approximately a third of our credit card processing costs if we weren't charged this punitive charge.
Costco works through U.S. Bank but Costco members are really treated royally. I recommend it. A second choice could possibly be Sams Club.
From Colorado Springs, CO, 07/26/2009
Arvind Carvale wrote:
"....We no only discount out fees by up to 50 % to insurance companies, so cannot take another hit by paying credit card companies....."
Why not give people 50% discount for their doctor visit?
I was told there is one family doctor in Colorado Springs that charges $35 cash for doctor visit. NO CREDIT CARDS are accepted. He also works for Doctors Without Borders.
Lynette Mueller (see above) was right. Businesses should give discount for cash payment, and raise prices equivalent to card charges for credit card payment.
From PA, 07/26/2009
We are solo physician office, and have resisted offering credit card service for this precise reason. We no only discount out fees by up to 50 % to insurance companies, so cannot take another hit by paying credit card companies. Customers looking for the convenience of using plastic must take it up with the credit card companies.
From Atlanta, GA, 07/26/2009
We recommend that merchants focus on their real rate to accept cards. It’s a simple formula. Each month, take card fees divided by card sales. Calculating this bottom line real rate helps better manage processing expenses. Merchants can compare their real rate costs with each other and within their industry at http://myRealRate.com. Using peer-to-peer social networking provides merchants with a resource to discover lower processing costs.
From Vienna, VA, 07/25/2009
It violates merchant credit card agreements with VISA, MasterCard and AMEX to offer discounts to customers who don't use credit cards. The card companies know stores would love to do this and therefore have large type warnings in the credit card contracts with merchants that if they do this they will lose the right to accept all credit cards.
From Hancock, MI, 07/25/2009
I am an odd person in that I only use plastic for purchases that cannot be paid in cash . Nothing is free and for any service someone must pay. There is no free lunch
From St. Paul, MN, 07/25/2009
we are craft artist. We processes our card by punching in on a terminal after the show and by taking phone orders. We usually pay about 4% for processing because many of our cards are being processed as NON_QUALIFIED. I have spent countless hours on the phone with our processor trying to find out what constitutes a non- qualified transaction and I have been given 10 different answers. I know I am getting ripped off.
From Waconia, MN, 07/25/2009
If the business will give me a discount for using cash, I will pay in cash and that will reduce the cost to the business. I receive cash back from the credit card company, thus making my purchase cheaper. Your story neglected to talk about this aspect!
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.