First the law. Last year Visa and MasterCard settled a legal dispute with a group of merchants claiming collusion on the part of credit card issuers in fixing swipe fees, the amount the credit card companies charge a merchant for each transaction. As part of that settlement, the credit card companies had to allow merchants the freedom to pass along swipe fees to customers if they choose to do so.
And there’s the kicker. If they choose to do so. Because credit card companies have always charged a swipe fee, one that was paid by retailers per transaction to cover the cost of equipment and processing.
The change does not effect debit cards or apply in any of the 10 states that already prohibit merchants from adding a surcharge to purchases.
Most retailers won’t pass that fee on to shoppers. The biggies, including Walmart and Target have declared there won’t be any change to how they do business. Shoppers will continue to shop and swipe and pay the standard price for products.
So why is this a good thing? First off, it opens up marketing and promotional opportunities for merchants. There’s talk of offering discounts for shoppers who chose to pay in cash. Stores may offer incentives to shoppers who use alternative forms of payment such as debit cards or PayPal. The eBay-owned PayPal is already available as an in-store payment option at several large retailers including Home Depot and Dollar General.
Listen, I’m not a credit or banking expert, but I do know a little something about how retail works. Merchants want more business not less. Credit card reform gives them more weapons in their competitive battle to boost sales and build loyalty. Many offer private label card credits — or store specific cards — and could use swipe fees to steer shoppers toward these products. Small businesses that currently don’t accept credit cards, could begin doing so as a convenience to shoppers willing to pay a premium for the pleasure.
There’s a component of the case that has retailers worried, a portion that fails to limit how much credit card companies can raise these fees. But again, sky-high fees may just help fuel more competition and better payment options.
Most shoppers will never pay an added swipe fee, merchants aren’t in the business of voluntarily alienating shoppers. But simply having the option of passing along these fees opens up all sorts of possibilities that will be good for merchants and shoppers. Just not the credit card issuers.
www.forbes.com
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