Two years after a settlement was proposed in the long-ranging antitrust battle between merchants and credit card issuers, the Merchants Payments Coalition (MPC) is still fighting against swipe fees that they say are gouging retailers.
In a recent press release, they warn consumers that banks are taking “an unconscionably huge chunk” of their money, resulting in higher prices as sellers pass along the added expense to their customers.
Interchange fees – often called swipe fees – amount to between 2% and 3% of each purchase, and are charged by credit card networks to merchants that accept credit card payments.
Retailers brought an antitrust suit against Visa and MasterCard in 2005, claiming that they illegally fix fees at unreasonable levels. In the latest release from the MPC, they use the example of a family renting a cottage at the beach for a week in the summer. The MPC says that if the cost of the cottage is $2,000 at the swipe fee is 4%, the bank will get $80 of the transaction. They claim the actual cost of the transaction is only a few cents, leaving the bank with a profit margin far higher than the person or company who owns the rental property.
In reality, most interchange fees are not as high as 4%. But the transaction cost for the credit card processor is the same whether the purchase is for $10 or $10,000. Banks profit more from interchange fees on higher dollar-value transactions.
Average summer vacation costs
The MPC highlights a study from insurance company Allianz Global Assistance USA that said Americans would spend $100 billion on summer vacations in 2014. That’s 20% more than they spent last summer. Out of 1,000 people surveyed by Allianz, more than 50% said they were traveling over 100 miles from home for their summer vacation. They estimated their average spending at $1,900 for the vacation.
The MPC points out that even if interchange fees are only 2%, banks will get $38 of that $1,900 if consumers use credit cards to pay. Of course, using credit cards benefits consumers for many reasons, the main one being credit card rewards they can collect from summer spending. Credit cards also offer increased security features that cash can’t give, plus perks like car rental insurance, access to airport lounges, and hotel upgrades.
The MPC is comprised of retailers including supermarkets, drug stores, convenience store, gas stations and online merchants. They represent approximately 2.7 million stores and 50 million employees.