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Merchants take a swipe at card fees


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    7-11 franchisee Gunu Singh. She says if it weren't for the fees she pays to credit card companies, she could hire another employee.

    - Stacey Vanek-Smith / Marketplace

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    Long Nguyen, 28, owns this 7-11 franchise in Santa Clarita, Calif. He's collected roughly 1,000 signatures from customers.

    - Stacey Vanek-Smith / Marketplace

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    A 7-11 in downtown Los Angeles has collected nearly 1,000 signatures from customers since July 11, protesting credit card interchange fees.

    - Stacey Vanek-Smith / Marketplace

Long Nguyen, 28, owns this 7-11 franchise in Santa Clarita, Calif. He's collected roughly 1,000 signatures from customers.

7-11 franchisee Gunu Singh. She says if it weren't for the fees she pays to credit card companies, she could hire another employee.

Bill Horvath, owner of software company Dox Systems, Toledo, Ohio.

Kim White, handbag designer, Los Angeles.

TEXT OF STORY

Bob Moon: If you've dropped by your local 7-Eleven lately, you might have noticed something. Past the glossy gossip rags and energy shots, a petition. The convenience chain is protesting the fees the credit card companies charge
every time we use plastic. Small business owners across the country say those hidden charges are talking a big gulp of their profits.

Marketplace's Stacey Vanek-Smith reports.


Stacey Vanek-Smith: It's about 400 degrees in downtown Los Angeles today. Perfect Slurpee weather.

[Sound of Vanek-Smith filling a Slurpee cup.

7-Eleven cashier: $1.53

I have cash somewhere in the greater depths of my purse. But it's easier to just swipe my card. I don't even have to sign.

Cashier: Thank you.

Actually, it's Visa that should be thanking me. 7-Eleven just had to pay them about 11 cents so I could charge my Slurpee.

It's called an interchange fee and it works like this: Every time I use my Visa card, the merchant who takes it, pays the credit card company a flat fee, usually about a dime. The card company also gets about 2 percent of the purchase price. So, for that $1.53 Slurpee, 7-Eleven paid Visa 11 cents, that's almost 10 percent of the price. Gunu Singh owns the 7-Eleven.

Gunu Singh: This store alone pays over $28,000 in credit card fees. And for us, that would translate into hiring another person from the community.

Singh says the fees aren't just expensive, they're extremely confusing. Visa's interchange rate is about 1 percent, plus the 10 cent flat fee. American Express charges about 1.5 percent, plus its flat fee. Rewards cards have higher fees; debit cards have lower fees.

Jeff Lenard is with the National Association of Convenience Stores. He says those fees totaled $48 billion last year.

Jeff Lenard: The credit card companies get together twice a year, they say, "Okay, this is the rate for this, this is the rate for this. If you don't like it, don't take 'em."

Interchange fees have tripled since 2002. And retailers, who have already been hammered by the recession, are now seeing interchange fees eating in to what little profits the have left, says Mallory Duncan, with the National Retail Federation.

Mallory Duncan: After you take out the cost of merchandise, rent, employees, benefits and all the other costs that go into running a retail store, the typical profit margin is 2 percent. That means most retailers only take home $2 on $100 of sales. Now, the card companies are asking for that same $2.

In his 7-Eleven in Santa Clara, Calif., franchisee Long Nuygen has already gotten about a thousand customers to sign his petition protesting interchange fees. He says it's easy to make his case, once customers realize they have something at stake.

Long Nuygen: "Is it really going to affect me?" That's their main question. And I'm like, look, it does, at some point, I have to pass on the goods. Now your milk costs more, because I have to make these margins somewhere.

But these merchants are leaving something out of the equation, says Peter Garrucio, spokesman for American Bankers Association, which represents credit card issuers.

Peter Garrucio: The key to remember or realize is the enormous benefit that merchants get from accepting plastic.

Garrucio points out that taking cards brings business to retailers and the banks that issue the cards take on the risk of the purchase. So if I don't pay my Visa bill, 7-Eleven still gets the money for my Slurpee.

There's legislation in the works that might let 7-Eleven keep more of that money. Congress is looking in to interchange fees and the Senate has introduced anti-trust legislation aimed at credit cards.

Justin Rose: I hate those credit card fees. They jack up the prices on food and drinks and chips and everything else in the store.

That's shopper Justin Rose. He said he's signed petitions at several 7-Elevens. 7-Eleven hopes to deliver a million signatures, including several from Justin, to Capital Hill next month.

I'm Stacey Vanek-Smith for Marketplace Money.


Comments from merchants in our Public Insight Network:

Kristina Runciman, Kingsport, Tenn., Lifeforce Glass, Inc. Accepts Mastercard, Visa.

We no longer take American Express. We tried it for a while because we had one customer that said in order to do business with his numerous stores (we're wholesalers) we had to take American Express. The fees were astounding. The customer didn't do the volume he'd promised, and we cancelled. No one else was surprised. Few of our customers (retail stores) take it.

I had a short, very unfortunate stint with US Bank Card. The sales rep was an acquaintance of mine and he gave me the rate, the cancellation policy and the fees, all in writing and all incorrect. Although the rate I was promised was 1.99%, what I actually got charged was more than double that. Then there were monthly charges and "gateway" fees. I was told I was in a three-year contract (I didn't know that) and could not cancel the account. These all came directly out of my checking account, there was no option not to pay it. Complaining to the customer service reps was hopeless. Wait times were 20 minutes and up. When I asked for the supervisor's name, they could only give a first name. I had to complain to the Better Business Bureau in their city before the account was cancelled.


Sean Harper, Chicago. TSS-Radio and TransFS. Accepts Visa, Mastercard, Discover, American Express.

For Visa and Mastercard we are charged:

  • Interchange rate (goes to credit card issuing banks) -- around 1.90% on average.
  • Processing markup (goes to processor) -- this is around 0.30% on average.
  • Assessments (goes to Visa/ Mastercard) -- around 0.09%.
  • For American Express we pay 3.5%, more than the 2.3% average we pay for a Visa or Mastercard transaction. Discover is about the same price as Visa or Mastercard.

The cost of accepting Visa and Mastercard keeps going up as more and more of the cards in circulation are rewards cards.

For a few days we stopped accepting Amex. We measured the sales loss, which was not significant, but we had to deal with so many questions from customers that it wasn't worth our time. Also, the reduction in American Express volume was offset by an increase in Visa/Mastercard rewards and business cards, which are much more expensive than average. Most people don't know that there is a wide range in the cost of Visa/Mastercard cards depending on the actual card.... The monetary savings were not worthwhile, so we started accepting Amex again.


Kim White, handbag designer, Los Angeles. Accepts Mastercard, Visa.

I only accept Mastercard and Visa because American Express charges me almost 4% processing fees (vs. 1.9% for Mastercard or Visa). I've lost a few customers because of it, because there is so much incentive to people to use their Amex -- but it's on the back of the processor!


Sri Narra , gas station owner, Dalton, Ga. Accepts Mastercard, Visa, American Express, Discover.

I pay more in credit-card fees than I take home from working 24/7 in my gas station. It is the single-largest expense after payroll. Now electricity is catching up.

The biggest issue is customers are hurting and cannot afford to go up on prices. The second biggest issue is with chain gas stations (Pantry, etc) that seem to be built on a business model of going bankrupt every seven years. Small biz is a living hell. Credit card fees are horrid and we cannot do a darn thing about it.

A large proportion of my meager retirement savings is in credit-card stocks.... If you cannot beat them, might as well join them -- right?


Bill Horvath, owner of software company Dox Systems
, Toledo, Ohio. Accepts Visa, Mastercard, American Express, Discover.

The fee schedule is complicated(!) and varies greatly depending on the card used, whether it's a rewards card, the method used to accept the charge, etc. We haven't refused to accept cards on the basis of fees so far, because what else can we do? They've got us where they want us. If we want our customers to pay us, we HAVE to accept their credit cards.

We switched vendors . . . a few weeks ago. The salesman told us we wouldn't have to pay for the new terminal he provided, and took our old one. Sure enough, the new vendor charged us over $300 for the new terminal, and claims that our salesman shouldn't have taken the old one, and, in any case, that he never turned in. We're still waiting for him to get back to us.


Have you had similar experiences with credit card companies?

Post your comments below:

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

Long Nguyen, 28, owns this 7-11 franchise in Santa Clarita, Calif. He's collected roughly 1,000 signatures from customers.

7-11 franchisee Gunu Singh. She says if it weren't for the fees she pays to credit card companies, she could hire another employee.

Bill Horvath, owner of software company Dox Systems, Toledo, Ohio.

Kim White, handbag designer, Los Angeles.

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If you want to save on your processing fees take the united states bankcard service challenge. We guarantee you a lower price or we will give you a 500 dollar check. email me at mjzenon@aol.com

The first i want to say is the is no discount for cash purchases it really a fee for using your credit card. So why can't small business just charge a flat rate fee, like the government does if you want to pay them with a credit card. Go into any court house a try to pay a ticket with your credit card. They say up front to pay with creditcard a fee is charge. Simple yet affective, why? They are the government and noone can tell them what to do. If a small business did the same thing say a ten percent flat fee to cover credit card fee would you lose customer damn straight you would. So its really upto the business to battle the 10% fee by hiding in the overall cost of the product cash or no cash. No one wants that and now with the compition of huge retail chains were are small business going to fit in. The government will not survive on these companies alone, so now is time to change this. Without small business the economy shrinks and the gov. knows that. Now I know every wants to get paid as soon as the the product leave the store, and the credit compainy claims there is zero lose in product even if the consumer doesn't pay his credit card bill which is fine, but come on who needs that customer anyway, Why have laws been made for these credit card com. to allow access to high intrest rate cards for consumers,so you can by product you can't afford? Come on the credit comp. have set up way to get thier money back, so why continue using these practice. Inflation cause the relaxing of these standards, so when it comes back down they are locked, so who really controls the government it the ALL MIGHTY DOLLAR and who controls your buck the credit card company so in turn you just throwing you government away to them, And for that reason we the people need to have a look at ourselves not the companies, we are the real problem, I know the truth hurts but we can change it together. Really small business is hurting and no wants to help so start using cash not your card.

I am a one-person, small-biz artisan who must accept credit cards at the few shows i do a year in order to not lose large sales. But the undisclosed fees are killing me, particularly the Rewards Cards; i can't tell them from regular cards, yet VISA/MC charges up to FIVE TIMES the rate to process them (up to 6% each)- on TOP of the regular fees. This isn't even in my contract. When i asked how to tell the rewards cards from the regular cards, i was told that they made it so one CAN'T tell, because merchants were declining them if they could tell. Well, jeez, DUHHHHH. Why should tiny, struggling businesses subsidize these giant bank's customer reward programs, without any choice or control, and without it even being disclosed? Credit card fees, PCI compliance, the costs for a wireless terminal, and other costs of taking credit cards are my single largest expense. On flat fees, there is absolutely no concession/"break" for smaller or seasonal businesses that do not do as much sales; in fact they are penalized at a far greater proportion of their sales as large businesses. It is an absolute take-it-or-leave-it free-for-all by these companies and sometimes the processors that administer the payments. I do believe it should be better regulated.

I'm surprised no one mentioned the other costs involved when a merchant accepts credit cards: certification of compliance with Payment Card Industry Data Security Standards. Not only does the merchant have to pay someone to certify them, but they could end up spending thousands of dollars on monitoring services, scanning services, and other security enhancements that are required in the standard.

https://www.pcisecuritystandards.org/

I also heard from our processor that if we are not compliant with these rules by 2010 MasterCard will start punishing to the tune of $10,000, doubling every quarter that we are not certified compliant. (Total cost could be $150,000 by the end of the year.)

Interchange charges are just the tip of the iceberg...

For the person who mentioned that the merchants should simply offer a "cash discount". Undoubtedly this has been thought of, simply look at any Pilot gas station. Against Visa/MC rules, they offer a cash discount. By offering a cash discount, you would theoretically be "prejudiced against" the Visa/MC cardholder, the person the company alleges to protect. Therefore, especially if you are a small merchant, and you get caught doing this, you will lose you will be TMF's and no longer be allowed a merchant contract to accept those cards AT ALL. It is proven that sales volume increases by 30% at businesses who offer credit cards. Which is why so many do. The fees are quite high. But, what is the " cost" of doing business? Their is a cost to the "loan", which is ultimately what a credit card is. This cost has gone up with so many people defaulting rather than paying their bills. I am confident that they continue to make a substantial profit ( Visa MasterCard). But, they are brands, and not companies. They are actually several banks. They are the true winners. They charge you interest to give YOU the loan. The charge the merchant to ACCEPT the loan. The bank then gives you a loan to pay off your credit card loan;) And people wonder why they say bankers run the world.

Finally, some agencies, particularly in the government sector, have opted to assess convenience fees to those who choose to pay with their credit card. This allows the agency to receive 100% of their funds, which is in accordance with state law, but they are also able to offer the convenience of accepting credit cards. Unfortunately, Visa has come down on companies who provide this service and further complicated matters with limited, and SELECTIVE enforcement for their rules.

For the person who mentioned that the merchants should simply offer a "cash discount". Undoubtedly this has been thought of, simply look at any Pilot gas station. Against Visa/MC rules, they offer a cash discount. By offering a cash discount, you would theoretically be "prejudiced against" the Visa/MC cardholder, the person the company alleges to protect. Therefore, especially if you are a small merchant, and you get caught doing this, you will lose you will be TMF's and no longer be allowed a merchant contract to accept those cards AT ALL. It is proven that sales volume increases by 30% at businesses who offer credit cards. Which is why so many do. The fees are quite high. But, what is the " cost" of doing business? Their is a cost to the "loan", which is ultimately what a credit card is. This cost has gone up with so many people defaulting rather than paying their bills. I am confident that they continue to make a substantial profit ( Visa MasterCard). But, they are brands, and not companies. They are actually several banks. They are the true winners. They charge you interest to give YOU the loan. The charge the merchant to ACCEPT the loan. The bank then gives you a loan to pay off your credit card loan;) And people wonder why they say bankers run the world.

Finally, some agencies, particularly in the government sector, have opted to assess convenience fees to those who choose to pay with their credit card. This allows the agency to receive 100% of their funds, which is in accordance with state law, but they are also able to offer the convenience of accepting credit cards. Unfortunately, Visa has come down on companies who provide this service and further complicated matters with limited, and SELECTIVE enforcement for their rules.

Why aren't more retailers exploring alternative payment options like PayPal? Although PayPal's niche is ecommerce, it's a solution every small business needs for flexibility, reduced fees and increased convenience for consumers. Brick and mortar folks need to think outside the box and look at growing online payment trends that can apply to their business.

The only solution is to provide legislation. I have no reason to change the Status quo. For regular card users like me, I am getting a net benefit from the card. I get reward points and free trips, but the cost of the credit card transaction is spread across all buyers. So I get subsidized travel paid for by the buyers who use cash and debt cards. While horribly unfair, it work well for me. For those who are surprised, why do you think they run all those expensive Visa commercials?

Interchange fees are not "just another bank fee." This is a part of 7-11 and the retailers mis-information strategy. This "strategy" is being led by Best Buy, WalMart, and several other mega retail chains. They want the public to believe that "interchange fees" are credt card fees. THEY ARE NOT.
NPR needs to do a follow up on what interchange acutally is.
Interchange is a fee that merchants pay for the convenience of up front payment and almost seemingless transaction between a two financial insitutions and VISA/MasterCard or another processor.
Retailers want their accounts to be credited instantly, but do not want to pay for the transaction.
I challenge NPR and Marketplace to conduct a follow-up story about what interchange actually is--and go to a small financial institution such as as credit union to find out the truth about interchange.

Ideally I would love to have an line item on the bill stating credit card fee and list the amount out clearly (just like sales tax or like).

That way people paying with cash get their discount. And people can evaluate the cost of convenience of paying with a card.

But this will be in violation of every single credit card contract I have seen till date.

No one disputes right of credit card companies to make a profit. Its when the industry gets together and keep a system in place (via contracts and such) that has nothing to do with cost to run it, it becomes an issue.

As to getting a free lunch with regards to credit card fees or anything else - the bill always gets paid one way or other.

In this situation, we can either paying a few cents every time we swipe a card or ones retirement fund taking a hit on some stock every couple of years.

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