Growth of small businesses stunted due to increasing interchange fees on credit cards
US Senator Dick Durbin, on Sunday, stated that small businesses were squeezing out too much in order to pay the high interchange fees charged by the banks for accepting credit cards. This, in turn, had a negative bearing on the customers since they have to pay high in order for the small business to cover these charges. Durbin, concerned about this burgeoning problem, offered to take up this matter at the legislation and get it fixed.
Durbin said “Higher interchange fees for businesses mean higher costs for retailers and consumers. Every time you make a purchase with plastic, the bank that issued your credit card gets a cut of the sale amount. American businesses and consumers are getting nickled and dimed by the big banks, who end up making billions from these hidden fees. Interchange fees need to be fairly and transparently negotiated between the merchants and the credit card companies who represent the banks’ interests so working Americans don’t get shortchanged.”
There is an interchange fee in the range of 1% to 3% per transaction that is levied by Mastercard and Visa for merchants who accept payments through credit or debit cards. The money that these two financial giants accumulate in this process is distributed among their network on banks to ensure the banks continue issuing credit cards to newer applicants. In 2008 alone, there was over $50M collected in the form of interchange fees. 80% of the $50M was divided among just ten major banks that issue most cards.
Durbin mentioned, “Banks love that money and they love the current interchange system.”
A part of the transaction amount comprises these interchange fees. For example, if a customer buys a product worth $100, a part of that amount goes as interchange fees to the banks that issue the card. The remaining amount, approximately $98 for a $100 transaction, is what the business gets. Hence, businesses have now begun to opt for one of the two approaches to make up for the money they lose in the form of these fees. They either increase the price of their products or they cut back on hiring new staff.
Durbin went on to say “The setting of non-negotiable rates by companies with overwhelming market power not only represents a failure of the market, it pinches the pocketbook of every American. Congress needs to pass meaningful and comprehensive reform of interchange fees. American consumers and businesses deserve a fair shake from the credit card companies.”
The amendments proposed by Durbin to the Wall Street Reform Bill would ensure that interchange fees on cards would be more affordable than it is currently.
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