The announcement yesterday that Visa Europe has reached a settlement with European Union regulators capping interchange fees on debit transactions paid by European retailers leaves American businesses, small and large, asking why the same cannot be done here. It also likely foreshadows further Visa increases on the fees paid by American retailers unless Congress acts soon on debit interchange reform, according to the Retail Industry Leaders Association (RILA).
Interchange fees, which are imposed by the card association and issuing banks to process the credit and debit card transactions, have tripled in the United States since 2001 to $48 billion last year and amount to a hidden tax on consumers. These “swipe fees” are charged to every retailer, small or large, for every credit and debit transaction processed. A study released in March identified swipe fees as stalling the creation of nearly a quarter million jobs.
In an announcement yesterday, Visa Europe agreed to cap debit card interchange rates at 0.2 percent for four years. In the U.S. the Visa debit card interchange rate rose nearly 30% in April to 0.95 percent plus $0.20 for every transaction.
“While most western economies have taken action to rein in excessive debit card swipe fees, here in the U.S. the credit and debit card industry continues to hurt retailers and consumers by setting rates indiscriminately and raising rates at will,” said John Emling, senior vice president for government affairs. “Without interchange reforms in the U.S., reform in Europe means the credit card industry will look to American retailers and consumers to make up lost revenue. As Congress debates comprehensive financial reform, now is the time to bring appropriate oversight and transparency to interchange fees.”
In today’s complex marketplace where business costs are commonly negotiated, interchange rates stand out. Retailers are powerless to negotiate these fees, and accordingly, they have skyrocketed while other transaction costs have decreased. Interchange rates are particularly harmful to small businesses which often face higher rates than larger businesses.
In addition to the EU, countries around the world, including Canada, New Zealand and Australia, have taken action to address hidden interchange fees that are excessive, are set in an anti-competitive fashion, and obscure the real costs associated with debit and credit card usage.
“The U.S. is fast becoming the only industrialized nation in the world that allows our own banks to stifle business growth by indiscriminately setting rates far above the cost associated with the service provided,” said Emling.
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.