From the Publisher: Getting into plastic

Credit card transaction fees may be headed down for retailers, thanks to a federal bill now making its way through Congress.

By Seth Mendelson

It appears that retailers, among many other businesses, may be about to get a little money back from their credit card companies.

According to an article in The New York Times in mid-May, the U.S. Senate passed an amendment to a banking overhaul legislation that will impose price controls on the debit transactions. The Times says that the amendment gives the Federal Reserve authority to regulate and limit the fees that businesses pay to card companies. It specifically addresses payments processed through the Visa and MasterCard networks. American Express and Discover cards are not covered by the bill.

According to the article, the amendment could save billions of dollars for all types of retailers, from family restaurants and dry cleaners, to grocery stores that are increasingly realizing that more and more consumers are making their purchases with credit cards. Retailers have tried to get federal legislation to control these fees, but have run into roadblocks over the years.

The Times says the legislation directs the Federal Reserve to cap those fees at a level that is “reasonable and proportional” to the cost of processing transactions. It will also prevent credit card companies from imposing an all-or-nothing requirement on businesses, requiring them to accept cards even on small transactions, and prohibiting businesses from offering discounts based on the method of payment.

The article notes that it is not a done deal quite yet. It reports that the banking overhaul bill still needs to pass the Senate, and then it must be reconciled with a House bill that does not mention debit card “interchange” fees. Credit card companies and banking institutions promise to fight the bill.

So is this really good for retailers. According to the experts, the bill has its positives and negatives. “It saves retailers money and will make them more competitive,” says one industry observer. “But the banks and credit card companies argue that some of these fees go into improvements at the checkout that speed and simplify the process. They say that retailers should be careful what they wish for.”

Retailers need their credit card companies to allow for more competition and help the merchants develop stronger profit numbers. Unreasonable fees have long dogged the retail industry and grocery stores, already operating on small profit margins, have been hit hard by rates that go get up in the 3% to 5% area.

The credit card companies have ignored pleas from retailers in the past to reduce these fees. As noted above, they say that the higher fees are needed for research and development as well as implementation of new technologies makes it vital for them to charge more for their services than normal costs and profits.

But the bottom line remains that grocery retailers need the many benefits of the credit card companies to help build sales and convenience at their stores. It is no secret that those consumers who use credit cards tend to make more incremental purchases than shoppers who use cash or a check.

Still, the two sides should have negotiated a deal amongst themselves without government intervention. Now, there is a possibility of a backlash in terms of less new technology and other factors. We should all keep an eye on this transaction.

Seth Mendelson can be reached at 212-979-4879, or at

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