CHICAGO — Credit card interchange fees cost consumers money in the form of higher prices and are the product of secret, collusive meetings among the companies that issue the cards.
That's the message the industry should be sending out to consumers and legislators, according to presenters at the Food Marketing Institute Show here last week.
“The most important thing is for us not to be on the defensive on this issue,” said John Motley, senior vice president, government and public affairs, FMI. “We want [the credit card associations] to be on the defensive everysingle day.”
The industry has made some progress through the 75-member Merchants Payments Coalition, he said, noting that several meetings with legislators have already taken place, and that in June FMI expects a hearing on the topic in the House Judiciary Committee. The MPC is also meeting with a group of Republican attorneys general to discuss the situation.
Retailers argue that the fees, which are assessed on all credit and debit card transactions, are not reflective of the card companies' actual transaction-processing costs but instead are used to cover the costs of membership-points programs and direct-mail campaigns.
The costs have been rising significantly — to the point where they are actually higher than retailers' profit margins. The average credit card interchange fee is now 2.14% of the sale, vs. average supermarket profits of 1.46%, Motley said. He said data provided to him by Price Chopper Supermarkets, Schenectady, N.Y., show that the chain's interchange fees have risen 1,025% over the 10-year span from 1995 to 2005. Weis Markets, Sunbury, Pa., reports that its interchange fees have risen about 700% in that time, according to Motley.
“We are paying for the entire rewards program for the credit card companies, and we're also paying for the $8 billion in marketing they spend every year,” he said.
“The competitive model is broken,” he added. “ Why? Because they don't have anyone competing with them for their fees. They actually use higher fees to attract more banks to issue their cards.”
The issue is beginning to sweep through state legislatures as well as gaining attention at the federal level. Currently, 11 states are considering some form of legislation related to the fees.
Although retailers have joined together in a lawsuit against the credit card companies, Motley said the goal is to impose government regulation on the fee structure.
“We are in this to establish a system that will be in place going forward, so the fees don't just go up and up and up,” he said.
David Bartlett of Washington, D.C.-based Weber Merritt, who is working with the MPC on their media effort on this issue, said the best way to discuss the topic with the consumer media is to play up the fact that these fees are set in private, back-room deals.
“There is a resistance to things that are hidden,” he said. “The fact that these fees are set in secret meetings someplace — that strikes a very resonant chord among most people. That gets to the heart of something that is very annoying to people.”
The cost of the fees in terms of increased prices is another avenue to pursue, he said. Motley said the average consumer pays $300 a year more in increased prices because of the fees, a burden that is shared by people who use cash and are on government assistance programs as well as by those who reap the benefits of using the cards.
Bartlett cautioned that credit card companies will seek to argue about the specific details of the fees, or that consumers are willing to pay for the convenience of using credit cards.
“If we try to fight them on the convenience issue, we will lose,” he said. “It's pennies that they pay for the convenience of using credit cards. We want to fight them on our terms, not on their terms.”
Maureen Elworthy, treasury manager at Ahold USA, also pointed out that retailers can work with their processors to minimize their fees. “If you are not on the phone with your processor at least once a week, something's wrong,” she said. “They should be working to get you the best rate they possibly can on interchange fees.”
She said efforts to make sure transactions are conducted using a high level of security will also help reduce fees.
Ahold helped gain publicity for the issue when it recently invited Sen. Arlen Specter, R-Pa., to a Giant-Carlisle supermarket in Camp Hill, Pa., to illustrate how interchange fees impact supermarkets' bottom lines.
Such efforts can be helpful in relating the issue to Congressional representatives throughout the country, Bartlett said.
“You need to tell a story,” he said. “Don't just complain; tell a story to the media.”