VISA Acknowledges Rates Charged Have Nothing to do with Costs 

A Visa executive verifies what merchants have been claiming for years, the rates that Visa charges merchants that accept their cards has no relationship to the actual cost of the service provided, said the Retail Industry Leaders Association (RILA).

Visa’s Global Head of Product Elizabeth Buse:

          “The fees are “not a cost-based calculation, but a value-based calculation.”
           (Andrew Martin, “How Visa, Using Card Fees, Dominates a Market,” New York Times, 1/5/10)

These fees, known as interchange or “swipe fees,” are imposed by credit card companies and issuing banks under the pretense of processing credit and debit card transactions.  However, these fees have tripled in the United States since 2001, to $48 billion in 2008, despite advances in technology that have reduced other comparable transactional costs.  Today, for most retailers, the cost of processing paper checks is less than the cost of accepting credit and debit cards.

A Government Accountability Office (GAO) report issued last year raised questions about the lack of competition in the credit card market, Visa and MasterCard alone represent 71 percent of the market, and the resulting effects on consumer prices.

“Although issuers incur costs for offering cards, concerns remain about the extent to which interchange fee levels closely relate to the level of card program expenses or whether they are set high so as to increase issuer profits. In a competitive market, the price of the product and the cost of producing it would be closely aligned. However, producers with market power—such as monopolists or those offering goods not generally offered by others—have the ability to charge high, noncompetitive prices.”   (GAO Report 10-45, Credit Cards, 11/19/09)

Merchants argue that their overwhelming market share allows Visa, MasterCard and their issuing banks to set rates at will without regard for the real cost of the services provided. According to Visa’s Global Head of Product Elizabeth Buse, merchants are correct.

“This is proof positive that the credit card giant operates outside of market norms,” said John Emling, RILA’s senior vice president for government affairs. “Because of their overwhelming market share, Visa arbitrarily and unilaterally determines the 'value' of card acceptance which results in excessively high rates that hurt retailers small and large.  For large retailers these fees stifle their ability to hire employees and reduce costs for consumers, for small retailers these fees can put them out of business.”

American retailers, small and large, have called on Congress, not to eliminate these fees, but to reform the rate setting process and bring fairness and transparency to the system.

RILA is the trade association of the world’s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.

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