The ongoing battle between merchants and card networks continues unabated. As the following article reports, small businesses dealing in low dollar transactions are most affected by payment card transaction fees imposed by the credit card networks.
The rules of the road for payment card acceptance are confusing and not transparent to many small businesses and consumers. That leaves many people wondering why in this age of technology, innovation, and convenience, a small business would post a sign “Cash is King: Help small businesses survive. If it’s under $10, please pay cash.”
For many businesses – both large and small – the cost of accepting plastic cards and other forms of electronic payments is one of their highest operating costs. Most business owners have no qualms about paying reasonable fees for business services, and they do so every day for items such as cleaning services, security systems, Wi-Fi, and other basic needs. However, they have the ability to negotiate for those services in a fair and transparent marketplace, which they do not with the two major credit and debit card networks.
Credit card and debit card fees are dictated directly by Visa and MasterCard and are imposed on the majority of merchants in a take-it-or-leave-it fashion. Most businesses feel that failing to accept these major card brands is not a competitive option so they continue accepting electronic payments even though the costs are squeezing their business, and the inflexible acceptance rules fly in the face of free market enterprise, while also inviting more fraud into the payment system by favoring the less secure and efficient signature card brands.
These card acceptance rules are one of the biggest concerns for businesses of all sizes. Payments can and should be a frictionless part of the retail experience. No one dines in a particular restaurant simply because of the way they can pay; people choose their restaurant based on the food. Businesses generally know how to provide the best, most secure, and most seamless experience for their customers, and card network rules interfere with the way in which they choose to operate.
The battle lines are being drawn once again as Congress considers whether to make changes to the Dodd-Frank Bill and in particular, the Durbin Amendment that regulates transaction fees. It is unlikely that any significant legislation will be passed until the new Congress takes over next year. But expect to see both sides on this issue continue to make their case on the contentious issue of payment transaction fees.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group
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