July 17, 2012
Convenience Stores Not Happy with Swipe Fee Deal
The proposed $7.25 billion settlement that retailers hammered out with Visa, Mastercard and the banks that issue their credit cards over swipe fees was generally hailed as positive when the news was announced last week. Some, however, see the deal as good for the Goliaths and not so much for the Davids in the marketplace.
To take a step back, the proposed deal, which still needs to be approved by a federal court, would pay $6 billion to plaintiffs in the case. Individual stores that sued would be paid $525 million and the card companies agreed to reduce swipe fees by 10 basis points for a period of eight months.
Plaintiffs in the case included Kroger, Rite-Aid, Payless ShoeSource, the National Association of Convenience Stores (NACS), National Grocers Association (NGA) and the American Booksellers Association.
"This is an historic settlement," Bonny Sweeney, a lawyer for the plaintiffs, told Reuters. "In addition to refunding billions of dollars to retailers that paid artificially inflated interchange fees, the reforms will create real price competition, leading to reduced card-acceptance fees for retailers."
One of the biggest changes that comes with the deal is that retailers now have the ability to charge more for credit card purchases while giving consumers a break for paying with cash.
Russell Walker, a professor at Northwestern University’s Kellogg School of Management, said the ability to threaten higher prices for credit card purchases would benefit chains.
"If you are a larger retailer, you can expect more power," he told Bloomberg News. "For the smaller retailer, it will be harder to be treated in the same manner."
NACS was most vocal in its opposition to the deal. The association’s president, Tom Robinson, who is also president of Robinson Oil, said, "Not only does the proposed settlement fail to introduce competition and transparency, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces."
Peter Larkin, president and CEO of NGA, was withholding judgement for the moment.
"We took this action on behalf of independent retail grocers to seek fundamental restructuring and reform of anti-competitive credit card interchange fees and payment rules," Mr. Larkin said in a statement. "While we have knowledge of the framework of the settlement, we have not seen the final language or had a chance to assess its impact on our members."
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Recent Discussions
Discussion Questions
Discussion Questions: Will the announced settlement over swipe fees help to resolve the dispute between bankers and retailers? Will large numbers of retailers begin to offer two sets of prices: one for cash and the other for credit card purchases?
Poll
Psychologically, consumers dislike fees much more than higher prices.
Shoppers will strongly prefer a $30 item to a $28 item with a $2 fee.
If this settlement gives retailers the option to expose payment method fees to consumers (even if it has no effect on the net price consumers pay), it will have a real impact on the payment method consumers choose.
Will consumers continue to use Premium Corporate Mileage cards if they see it has the highest fee of all? A potentially very favorable development for alternative payment networks like PayPal In-Store.
NACS, which represents approximately 150,000 convenience store locations in the U.S., issued a July 13th press release rejecting the proposed antitrust settlement and stated that it reserved the right to begin a new class action.
Why? Since 2005 the credit cards fees paid by this industry have exceeded its pretax profits. Some of this is due to rates being charged and some is due to the increasing price of fuel and the corresponding rise in the number of people using credit cards for purchases. At its SOI meeting this spring, NACS reported that these fees for 2011 were $11.1B versus an industry pretax profit of $7.0B.
The industry fought hard to have the right to offer two tiered pricing and, while the contracts with MasterCard and Visa prohibited charging more for credit card usage, it offered a discount for cash. Theses discounts ranged from three to five cents per gallon of fuel. I expect that this practice will continue to grow as the industry’s retailers install the hardware and software necessary to provide cash discounts to fuel customers. I don’t expect any retailer to be foolish enough to state that you need to pay more to pay with a credit card.
This settlement, like the debit fiasco brought about by Dodd-Frank, will create numerous unintended consequences at the Operations and Financial levels of retail.
Negotiating effective pricing between the Card companies and the individual Retail Chains was the best course of action. Unfortunately, both parties became overly greedy. Retail sees a significant “line item” on card fees, and decides it is time to fight back. They won on the front end, but it’s going to cost them over the next couple of years trying to implement how to take care of customers at the counter.
The small merchant doesn’t have a place at the dance, as they need to continue to accept payment as it happens — adding a fee is not the answer for most of them.
This ruling in any direction will widen the gap in relationships between consumers, retailers and banks. As relationships in business become more and more strained, we begin to see the emergence of true creative financing. Perhaps we are not far from seeing one of the larger retailers buying a bank to handle, or rather, more effectively manage the costs to provide financial services to the consumer. After all, General Electric, Ford, and others have services to provided capital to their customers when and where it is needed, so why shouldn’t others give it a try?
It’s hard to find universal happiness in anything being done today. That includes the Swipe Fee deal. I doubt that the settlement will resolve the dispute between bankers and retailers. Mutual trust wasn’t established by the settlement.
Re the possibility of two sets of prices, I hope we don’t see such a system arise. That will just create more disputes. If credit card purchases were known to increase the retail cost to the consumer, I would be inclined to evaluate a cash only business.
Wait a minute here… who pays the swipe fees? The retailer no more pays the swipe fees than it pays sales tax! This is a cost of doing business and as such, is passed on to the consumer. But swipe fees don’t determine C-Stores’ profit as long as they are applied equally.
Also, I am given to believe that credit card processing is handled by hundreds of different companies and organizations. Why don’t the C-Stores shop for service or if that’s not a viable solution, then use the C-Store association to set up their own clearing system? Whatever, but for gosh sakes quit all the public whining. If you need more revenue, just raise the price of hot dogs or fountain drinks!
As a consumer I’d very much like to know what portion of the cost of goods is driven by the financial services industry and have the opportunity of saving money by not using plastic.
If this settlement is any good, retailers will have a choice about how to reward their customers. They could charge an explicit fee, like a sales tax. Or they could offer discounts to customers paying by cash or debit, like a mark-down taken at the cash wrap. Perhaps the second option will generate more appreciation from customers toward the retailer.
Let’s try a new angle…swipe fees been “excessive” but what Visa and MasterCard have done to smooth and promote commerce to the far reaches of the globe are nothing short of amazing. Of course it eats into margins for an industry that often operates on the thinnest of them, but retailers continue to benefit mightily from this service. Consumers spend much more with credit cards because of the convenience and not having to delay gratification. Furthermore, credit card companies assume the risk for getting paid and that is worth something, too.
I heard this approach from a bank executive … thoughts? In addition, over time, a market with excessive profits will not last (the banks). Other entrants (PayPal, mobile payments, etc.) will seek a piece of the action and rebalance the market, benefiting consumers. Just don’t let government distort the market and protect the incumbents from competition.
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Psychologically, consumers dislike fees much more than higher prices.
Shoppers will strongly prefer a $30 item to a $28 item with a $2 fee.
If this settlement gives retailers the option to expose payment method fees to consumers (even if it has no effect on the net price consumers pay), it will have a real impact on the payment method consumers choose.
Will consumers continue to use Premium Corporate Mileage cards if they see it has the highest fee of all? A potentially very favorable development for alternative payment networks like PayPal In-Store.
NACS, which represents approximately 150,000 convenience store locations in the U.S., issued a July 13th press release rejecting the proposed antitrust settlement and stated that it reserved the right to begin a new class action.
Why? Since 2005 the credit cards fees paid by this industry have exceeded its pretax profits. Some of this is due to rates being charged and some is due to the increasing price of fuel and the corresponding rise in the number of people using credit cards for purchases. At its SOI meeting this spring, NACS reported that these fees for 2011 were $11.1B versus an industry pretax profit of $7.0B.
The industry fought hard to have the right to offer two tiered pricing and, while the contracts with MasterCard and Visa prohibited charging more for credit card usage, it offered a discount for cash. Theses discounts ranged from three to five cents per gallon of fuel. I expect that this practice will continue to grow as the industry’s retailers install the hardware and software necessary to provide cash discounts to fuel customers. I don’t expect any retailer to be foolish enough to state that you need to pay more to pay with a credit card.
This settlement, like the debit fiasco brought about by Dodd-Frank, will create numerous unintended consequences at the Operations and Financial levels of retail.
Negotiating effective pricing between the Card companies and the individual Retail Chains was the best course of action. Unfortunately, both parties became overly greedy. Retail sees a significant “line item” on card fees, and decides it is time to fight back. They won on the front end, but it’s going to cost them over the next couple of years trying to implement how to take care of customers at the counter.
The small merchant doesn’t have a place at the dance, as they need to continue to accept payment as it happens — adding a fee is not the answer for most of them.
This ruling in any direction will widen the gap in relationships between consumers, retailers and banks. As relationships in business become more and more strained, we begin to see the emergence of true creative financing. Perhaps we are not far from seeing one of the larger retailers buying a bank to handle, or rather, more effectively manage the costs to provide financial services to the consumer. After all, General Electric, Ford, and others have services to provided capital to their customers when and where it is needed, so why shouldn’t others give it a try?
It’s hard to find universal happiness in anything being done today. That includes the Swipe Fee deal. I doubt that the settlement will resolve the dispute between bankers and retailers. Mutual trust wasn’t established by the settlement.
Re the possibility of two sets of prices, I hope we don’t see such a system arise. That will just create more disputes. If credit card purchases were known to increase the retail cost to the consumer, I would be inclined to evaluate a cash only business.
Wait a minute here… who pays the swipe fees? The retailer no more pays the swipe fees than it pays sales tax! This is a cost of doing business and as such, is passed on to the consumer. But swipe fees don’t determine C-Stores’ profit as long as they are applied equally.
Also, I am given to believe that credit card processing is handled by hundreds of different companies and organizations. Why don’t the C-Stores shop for service or if that’s not a viable solution, then use the C-Store association to set up their own clearing system? Whatever, but for gosh sakes quit all the public whining. If you need more revenue, just raise the price of hot dogs or fountain drinks!
As a consumer I’d very much like to know what portion of the cost of goods is driven by the financial services industry and have the opportunity of saving money by not using plastic.
If this settlement is any good, retailers will have a choice about how to reward their customers. They could charge an explicit fee, like a sales tax. Or they could offer discounts to customers paying by cash or debit, like a mark-down taken at the cash wrap. Perhaps the second option will generate more appreciation from customers toward the retailer.
Let’s try a new angle…swipe fees been “excessive” but what Visa and MasterCard have done to smooth and promote commerce to the far reaches of the globe are nothing short of amazing. Of course it eats into margins for an industry that often operates on the thinnest of them, but retailers continue to benefit mightily from this service. Consumers spend much more with credit cards because of the convenience and not having to delay gratification. Furthermore, credit card companies assume the risk for getting paid and that is worth something, too.
I heard this approach from a bank executive … thoughts? In addition, over time, a market with excessive profits will not last (the banks). Other entrants (PayPal, mobile payments, etc.) will seek a piece of the action and rebalance the market, benefiting consumers. Just don’t let government distort the market and protect the incumbents from competition.