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Card Fees Pit Retailers Against Banks

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http://www.nytimes.com/2009/07/16/business...mp;ref=business

The most profitable item at Patricia Orzano’s 7-Eleven store on Long Island is coffee. Slurpees are a distant second.

But as more customers use plastic to pay for even small purchases like these, she has watched a growing share of her revenue vanish in a stream of credit and debit card fees that retailers say raise the price of goods and sharply lift the cost of doing business.

Merchants across the nation, from powerhouses like Wal-Mart and Home Depot, to gas stations, mom-and-pop restaurants and 7-Eleven, have spent years unsuccessfully fighting the biggest of these costs, known as an interchange fee, which generates an estimated $40 billion to $50 billion in income annually for banks that issue credit cards.

But after Congress passed a law last month to protect consumers from excessive fees and interest on credit cards, merchants are mounting a fresh offensive.

This time, they believe the momentum in Washington has turned in their favor. Legislation is winding its way through Congress, a government audit has been ordered and petitions are surfacing in hundreds of convenience stores, including Ms. Orzano’s 7-Eleven, encouraging customers to voice their opposition to the fees. “Congress sort of already illustrated the willingness to take on the credit card companies and the big banks,†said Keith Jones, a lobbyist for 7-Eleven. “We just feel like the job is half done.â€

And while large and small banks often clash on political agendas, they have formed a united front, joined by payment networks like Visa and MasterCard, to prepare for a furious battle on Capitol Hill. With profit from credit cards likely to diminish because of the new laws, they are determined not to absorb another major hit.

“It’s a big deal to them, and they would be fully engaged in it,†said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association.

Every time a consumer uses plastic, about 2 percent to 3 percent of the charge goes to banks and payment networks, which price the fee differently in different countries. Of that, the interchange fee is paid to the cardholder’s bank, and at roughly 1.8 percent of each purchase in the United States, according to June report by J.P. Morgan, it is the largest and most controversial of these costs.

But retailers may have a tough time convincing Congress that consumers would benefit if the effective interchange rate, which has increased slightly in recent years, is dialed back. Many other countries, including Israel and Australia, have required banks that issue cards to reduce the fee. Yet there is little evidence that the savings were passed along.

We are here to serve the banks and just give them money.

This is the economic system.

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Only because of our laziness. If traders and the public used cash there'd be no problem.

There is a choice.

Retailers themselves have been withdrawing incentives to use cash - cash discount - no sir, we make more money form supplying credit or would prefer to stump the charges. OK it costs retailers to process cash and it is hassle, well for that they got the flip side - card charges. Many were happy to follow this trend, they gave no reason for the public to use cash so the public stopped using cash (where it could).

Edited by OnlyMe

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Id be annoyed i the bank was charging more for credit transacts than dealing with cash, which needs a truck and security guards to move it...this cant be right...surely?

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Only because of our laziness. If traders and the public used cash there'd be no problem.

There is a choice.

Simple solution - offer a discount for cash

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Retailers themselves have been withdrawing incentives to use cash - cash discount - no sir, we make more money form supplying credit or would prefer to stump the charges. OK it costs retailers to process cash and it is hassle, well for that they got the flip side - card charges. Many were happy to follow this trend, they gave no reason for the public to use cash so the public stopped using cash (where it could).

I turned against all that a couple of years ago and now only use my card to buy expensive things or if I am caught short and need to buy something - everything else is paid for in cash (I am lucky I dont spend a huge amount so you would probably never get more than £50 if you mugged me).

I hate the idea of some jumped up YTS bank employee doing analysis on everything I buy, and I dont trust this government to not start analysing this data soon themselves. I don't have a Clubcard or other similar card for the same reason.

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Guest KingCharles1st
Simple solution - offer a discount for cash

You have hit on an interesting phenomenon there.

Firstly, people use CASH, until they get their first credit card.

they then manage to keep abreast of payments, giving them a good credit rating, and are constantly teased with new cards, alternative offers, bigger available limits.

One day, the customer can no longer (for whatever reason) service the debt.

Credit is no longer available.

Person goes back to using only cash, and learns about money, and responsibility.

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Id be annoyed i the bank was charging more for credit transacts than dealing with cash, which needs a truck and security guards to move it...this cant be right...surely?

Possibly is... the issue here is that it's NOT specificially the credit card companies which make the charges , instead its the acquiring networks.... of course transaction fees are then passed on and they becoem profit.. the acquiring networks themselves are infprofitable largely as they have to deal with situations like fraud etc..... they make quite a bit, a lot gets paseed to the credit card companies, a lot more goes in fraud etc.. result limited profitability. It won't be simple to untangle I suspect.

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But the retailer benefits as well. The transaction is now more likely to be fully automated. The purchase is made, a few days later the funds are deposited in the retailers account. No risk of violence by thieves trying to steal cash, no risky and/or inconvenient trips to the bank to queue up and pay the money in. Less risk of losses by fraud, provided the retailer checks the signature or the correct PIN is entered the funds are pretty much guaranteed. A cheque can be dishonoured, notes can be forgeries.

As for someone analysing my spending patterns well more fool them. I can't see what I spend would be of interest to anyone. My wife usually puts my earnings in a very safe place - Marks and Spencers tills!!

I use my cards for the great majority of my purchases. I use cash back cards, so in effect I get a small discount on everything I purchase. Not much but at the end of the year it's a little bonus.

The retailers encouraged us to use cards. Individual spends are larger when plastic rather than notes and coins are used.

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I was in another part of the country at the weekend for an event, and had pre-booked a hotel for my partner and I for the evening. Premiere Inn it was. When we arrived in the afternoon to drop our things off at the room and pay or dues, the nice lady behind the counter refused to take cash from me without a form if ID. So subsequently we ended up having to pay by card. Company Policy the lady said. Suffice to say I wont be booking at a Premiere Inn again ... And theres me thinking cash was legal tender in this countrly ... If your carrying cash, then your suspect .. thats the way it goes these days .. :ph34r:

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