Interchange fees are now one of the hot issues in the credit card industry. Merchants are doing their utmost to forward their efforts of having interchange fees regulated by law. Visa Inc, one of the major credit card issuers has found itself on the spot to fight off these efforts and preserve the particularly lucrative profit source: interchange fees.
Interchange fees are fees every merchant is charged whenever they accept credit cards or debit cards as payment for transactions. Typically, a merchant pays a flat fee and an additional 1.6% to 2.5% of the purchase amount as interchange fees. Considering the rising number of credit and debit card transactions in the country, profits from interchange fees are very considerably. The U.S. alone saw profits of up to $48 billion last year, an increase of 14% from 2007's figures. Merchants, on the other hand, see interchange fees as a large expense, one which they believe is unnecessarily high. They are therefore, lobbying hard for Congress to create legislation controlling interchange fees.
At this point, there are three bills being considered in Congress aimed at limiting the impact of interchange fees on merchants.
One of the biggest movements among merchants is retailer 7-Eleven's collection of 1.6 million signatures petitioning congress for interchange fee legislation. According to the retailer, they have very limited options when it comes to interchange fees. For instance, they are not allowed to set minimum purchase limits for credit or debit card purchases.
While 7-Eleven's campaign may seem to overwhelm, many see that Congress may not be as supportive of interchange fee legislation as they were with the Credit CARD Act. The issue does not directly affect consumers and Congress still has a full agenda, what with the health care and other major issues it is currently considering.
Moshe Orenbuch, analyst for Credit Suisse noted in his research notes that: “We believe that this legislation has no chance of passing this year”.
Some still remain hopeful that Congress may still consider the issue and that attention to the issue may force credit card issuers to reduce interchange fees. Currently, 75% of credit card payments are handled by MasterCard and Visa networks.
Visa is reacting strongly to the movement for interchange fee legislation. It recently started an ad campaign this month in Washington where it promotes its role as a network for “digital currency” payment and the benefits that it brings.
CEO and Chairman Joseph Saunders had this to say about the campaign: “Because of the reliability and speed of Visa digital currency, people often take it for granted. Few understand that Visa is a global payment technology company that enables our financial institutions and merchants to deliver the value of electronic payments. The more we communicate what Visa is and what exactly we do, the better we will be understood”.