By Mickey Walker-December 20, 2009
Black Friday is tomorrow. The day after Thanksgiving is the single largest shopping
day in the history of the world. Billions of dollars will be spent on specials and deals. Many major merchants are slashing
prices up to 20%, 50% and even 100% in order to win the business. And some merchants are paying customers
to buy their merchandise! Sound
crazy? To be sure. But it is true. Many merchants are losing money simply
because of the transaction fees credit card companies force them to pay.
Everybody loves credit cards. It is the single best solution to not having to carry lots
of cash wherever you go. It helps
you keep a neat account ledger of your purchases and when they are due. MasterCard and VISA are the biggies,
but Discover Card and American Express are alive and well and they round out
the top 4. If you pay off your
bill each month there is no interest charge, either. Lovely. So what
is wrong with credit cards? How do
they affect our lives, both consumer and merchant adversely?
First, each time a card is swiped its magnetic strip charges
the merchant a fee of typically 2% of the total purchase. And each time an item is returned,
another ominous charge of 2% or higher is charged to the merchant. Zowie. But wait. American Express charges more, up to 4 or 5%. Who pays for this? The merchant pays on contract with the card company each month. And the consumer pays a hidden fee in
the merchants’ costs of doing business by paying more for merchandise and
services. Didn’t know that,
eh? Don’t feel bad; I didn’t know
that, either.
A couple of days ago I was invited to join a conference call
where merchants and reporters spoke of the problems generated by high credit
card transaction fees. Robert
Johnson, president and general counsel of a consumer protection group, Credit
Card Con, was one of the hosts. He
told the listening group that in 2008 $48 billion dollars was paid out to the
credit card companies in “transaction fees” or “swipe” fees for when the card
is used. He went on to say that
MasterCard and VISA had an 80% market share of the plastic business. And he gave an ominous warning
that merchants, operating on small margins as it is, are being forced toward
bankruptcy. All this is due to the
arbitrary credit card charges they must pay if they choose to accept credit
card payment from their customers. And to refuse a credit card as a means of payment is unthinkable. Consumers would take their business
elsewhere. Further, he mentioned
that small businesses, already strained to survive with low margins of profit,
cannot lead the economic recovery if they find it necessary to shut their
doors. Everybody, including the
consumer, would lose if that happens.
http://www.dailykos.com/story/2009/11/18/805770/-Follow-up
Peter Hampton, a Wisconsin consultant to the restaurant
businesses in his and a couple of neighboring states, said many of his
restaurant owners complained bitterly about the “swipe fees” credit card
companies were charging merchants to do business. One client of his, he said, had a 2 million dollar operation
that made, typically, a 4% margin of profit. “Take away 2% for credit card transaction fees, and that
leaves the owner with an annual income of $80,000.” That is, if nothing unforeseen happens to blow a hole in the
operation.
Mike Hallack, a consultant to new business startups said
that even though the merchant pays a whopping 2% to do credit card business,
the consumer paid an average of $500.00 a year for “swipe” fees that were
hidden in the prices of goods and services. Even if you paid cash, he said, the credit card inflated
price for most items is enmeshed into the price of goods and services. Yet, some merchants offer discounts if
you pay them in currency, like in when green (actual) dollars, hits the
mahogany. Amazing how many words it
takes in these times to describe crisp green dollars when plastic payment is
sometimes referred to as cash. For
years, I suspected a merchant of wanting cash to avoid declaring taxes, but now
it seems clear. Such an offer
could be simply to avoid paying a 2% credit card swipe fee. Makes more sense.
J. T. Martin, a Salt Lake City merchant owns a 10,000 square
foot grocery store that has been operating since 1942. 80-90% of his business is plastic. At present he must borrow to pay his
credit card transaction fees to keep the doors open of a neighborhood market
that has been open for over 60 years. Sounds critical.
Ginger Durier, president of hundreds of C.N. Brown
convenience stores in Maine, New Hampshire, and Vermont, said she paid $343M in
credit card fees in 1995. In 2007,
she paid $3.4MM and they sold less gasoline at the pumps that year than in
1995. “It destroyed my bottom
line.” she told us. The sad thing
is that if someone bought a newspaper with plastic, it paid her to let the
consumer have the paper for free. Paying
the credit card transaction fee would put her in the hole. That’s madness.
Theresa Eubanks, a Nashville, TN operations officer for over
3,000 merchants said these merchants were all pushed to the breaking point from
high credit card transaction fees. What would happen to the economy of that region if suddenly 3,000 small
businesses would close the doors? How many jobs would that cost the community?
Gabriel Ovarka, Director of the New Haven, CN, Water
Pollution Control Authority lamented how the swipe fees credit card companies
charge him do not benefit his 200,000 users in any way. He said that it is sad that all those
dollars are not going into the improvement of water quality or service. In other words, the credit companies
win and get to behave badly while the consumer pays the price and gets nothing
for the swipe fees.
Darrell Warren, a retailer in North Alabama and South
Tennessee, says credit card transaction fees are the fastest-growing expense in
business. He cited a
heart-rendering example of how the credit card swipe fees threaten to close the
doors of honest businesses. A
jeweler in Alabama sold a $10,000 diamond ring to a customer (swipe fee: $350). The customer’s wife did not like the ring and he returned it
to the jeweler. Cha-ching, ring up
another $350.00 swipe fee for the credit card company. The jeweler was out $700! He lost money!
It is obvious that we the consumer and the small business
merchant who serves us are losing big money. Simply put, the credit card
companies that strangle us and threaten to put us all out of business are out
of line. The arbitrary fees they
charge for doing business in 2008 cost us all over $48 billion dollars! That could buy a lot of salami. But we get nothing for it. The merchant is forced into a kind of
business partnership with credit card companies that mandate voluntary
slavery. I know, I know, “mandate”
and “voluntary” are a paradox. But
so is the merchant who must share half of his company profits with a credit
card company. Merchants must pay a
kind of “protection fee” to the credit card companies a la when Al Capone had
his hooks in every merchant in Chicago back when. Paying exorbitant swipe fees is a form of forced socialism
by voluntary partnership (“forced” and “voluntary” but the madness rules).
It’s not enough that small businesses have to dig deep to
pay their increasing costs, taxes, and other related business fees, but they must
pay ransom amounts to the credit card companies. It’s like our Free Market system got mugged and continues to
bleed in the streets for those who have a gimmick that everybody wants. And everybody wants and is in love with
credit cards.
To save the small businesses of America, we must act before
it’s too late. We must write and
call our congressmen and congresswomen to demand fair practices for the people
and small businesses. Arbitrary
credit card transaction fees that strangle small businesses must be reformed
and changed. Wonder how the credit
card companies would like to make do with 1% swipe fees per transaction or less? Think they would explode and cease to
exist? With all the double-digit
interest billions that credit card companies receive from cardholders who do
not pay in full every month, perhaps the card companies could loosen their
death grip on small business and consumers. If we are to ever recover from this economic turmoil and
downturn of the early 21st century, we must depend on small
businesses and their owners who live in our communities, to lead the way. Without them we would be at the mercy
of the giant corporations that view their bottom line first and people
second. Without small businesses
we would see a bankrupt America. And we cannot afford to wait. Let us not become as hard and rigid as the plastic corporations who
would choke small businesses with unfair transaction fees just because they can
and have gotten away with it. Let’s
stop holding still for abuses that threaten our way of life. 