In the credit-card swipe fee battle, there appears to be no easy way out, as at least one merchant has rejected MasterCard and Visa’s offer of $7.25 billion to make up for interchange fees – known as “swipe fees” – and make the case go away.
The settlement we reported as being imminent last week looked to be a done deal, with MasterCard and Visa offering a multi-billion dollar payout to the merchants who slapped them with a lawsuit back in 2005, saying that the processing fees they charge were exorbitant and amounted to a price-fixing scheme, violating antitrust laws.
The proposed payout of $7.25 billion would be the biggest-ever settlement of an antitrust case, but the National Association of Convenience Stores has already rejected the offer, saying that it doesn’t go far enough, and that banks will simply continue their behavior after handing over the penalty.
Green Light for Fees?
Part of the settlement would also allow merchants to raise prices in order to compensate for interchange fees, which are typically two percent of the purchase price. This caused some customers to fear that they would be the ones who ultimately pay the price in this lawsuit. However, there was also speculation by financial experts that stores might instead offer a discount for cash payments, or that competition between stores would benefit customers in the end.
Craig Wildfang, of Robins, Kaplan, Miller & Ciresi – the firm representing the plaintiffs in the case – issued a statement Friday saying, “I am highly confident the benefits of this settlement will accrue to consumers.”
Swipe Fees Not Universal
Those who have said the settlement would be bad for consumers are ignoring the fact that ten states – including Texas, New York, and California – have laws against such surcharges. That means merchants are prohibited from passing on increased fees to customers in any case.
“The panic about increased fees for credit card use is unfounded,” says Michael Germanovsky, editor-in-chief of Credit-Land.com. “The retailers involved in this lawsuit are national, and since surcharges are prohibited in many states – including the largest states in the country – it wouldn’t make much sense for them to start charging fees for credit card use.”
Of course, many stores do impose a minimum purchase amount required to use a credit card – usually there is a $10 or $15 minimum for credit card use. That’s because a merchant can’t make enough back on a $2 purchase to compensate for credit card processing fees.
Cash Not King
As for merchants who would offer discounts for cash payments, they could be shooting themselves in the foot. Cash is inconvenient for merchants to handle, and requires daily trips to the bank, keeping the change drawer filled, and increased cashier training and oversight. In a world where cash is rapidly disappearing, merchants encouraging the use of cash would not make much sense.
If $7 Billion Doesn’t Say I’m Sorry, What Does?
So, if the merchant coalition does indeed roundly reject MasterCard and Visa’s $7.25 billion settlement offer, what more do they want?
It seems they don’t just want money thrown at the problem – they want substantive changes in the way banks structure their fees. Mallory Duncan, general counsel for the National Retail Federation, says that the money offered in the settlement “does very little to actually fix the problem.” She says that after the payout, banks will simply return to their old ways.
Meanwhile, some financial experts think that the merchants are just trying to play hardball and get more money – not revolutionize the banking industry.
“In the end,” says Credit-Land.com’s Germanovsky, “using credit cards makes life easier for everyone – retailers and consumers alike. No matter how much retailers may grumble about credit card fees, they are a more convenient payment option all around.”