Retailers battling over swipe fees: Who pays the price?

By Michelle Latham

With tight profit margins and savvy consumers who want the best deals possible, retailers constantly fightto keep their bottom line from collapsing. In a world where every cent counts and no one wants to pass the buck to customers, retailers and banks battle over the cost of swipe fees. In 2011, retailers won a partial victory when Congress enacted legislation to limit the amount banks could charge retailers when customers swiped debit cards. Now, retailers are looking for a win in the credit card arena.

The cost of credit card processing

Credit card swiping was more expensive for retailers than debit card activity even before Congress set limits on the latter. One reason is due to the types of cards consumers are more likely to use. Cards with airline miles or cash back rewards cost the credit card company money. The price of those rewards has to be found somewhere, and one area is swipe fees, which are generally higher than with non-reward cards. Since customers are likely to use reward cards more than non-reward cards, retailers are racking up part of the cost of card benefits.

Why retailers want to push back
 
Retailers with merchant services accounts are tired of footing the bill for extra customer service measures on the part of the bank. There are many retailers who believe the bank is better able to absorb the cost of credit card processing, especially since the card is a product of the bank, not the retailer. On the surface, this argument makes logical sense. Printed money ultimately comes from the bank, as well, but retailers are not paying fees every time someone pays in cash. Another reason some believe banks should take the hit is a feeling that financial entities do not need the millions of dollars in revenue generated by these fees.

Of course, the banks feel differently about it. When Congress threatened debit card fees in 2011, the banks stated that lost profits would need to be recouped elsewhere. In most cases, those profits were made up by increasing interest rates for customers, adding or increasing annual fees, and cutting back on free or low-cost service items like free checking and online banking.

Even though no one wants to pass costs to the customer in an open forum, it is the end-user who ends up footing the final bill. Retailers can markup goods to help cover costs and banks can charge service fees and raise interest. The question for consumers is whether they want their favorite store pushed out of business due to unfair merchant services fees. The answer is probably no.

The battle over credit card fees seems to be one that cannot end with a win-win proposition. Retailers will continue to fight in order to save their businesses. If history is any indication, they may be successful with legislation to limit fees, but will Congress also enact legislation to help protect the cardholder from financial reprisal associated with a retailer victory? It is a question for which consumers, retailers, and banks share an equal interest.

About the Author

Michelle Latham is a Credit Specialist at Switch Commerce, a merchant services provider based out of Irving, Texas.

The Ins and Outs of Credit Services

Credit services are a commonly utilized by both individuals and businesses around the World. Credit commonly takes the form of electronic money that is recorded in virtual accounts in the form of a loan with interest. This interest is usually 'compounded' at or near the quoted Annual Percentage Rate (APR) on a regular basis. When interest is 'compounded' it is recalculated based on balances during each billing period rather than once a year. This allows the credit card company to charge interest 12 times a year instead of just once.

To benefit from credit services it is important to read the terms of agreement before acquiring the service. The terms of agreement include information on how interest is calculated, whether the interest rate is variable or fixed, annual fees, finance charges, late penalties and so forth. Credit services may increase interest rates in the event of late payment and special rules regarding introductory offers may only be printed in the terms of agreement. Some credit services may offer a grace period and information distinguishing various kinds of credit use.

Several unique advantages can be acquired through proper use of credit services, however understanding the need for and usage of the credit can be quite important to the effective use of the credit. For example, credit services can be used to improve credit scores, manage cash flow and have an alternate form of payment to cash, checks, money orders etc. Use of credit can also assist in transaction security as signatures are often required in making payment by credit except in the instances of smaller payments. A few of key aspects of credit are described hereafter.

• Credit Card Balance Transfers

Credit card balance transfers are often a part of a new or promotional credit card agreement. In a credit card balance transfer a credit card holder pays debt on another credit card with a second card. The transfer may be approved and performed by the second credit service provider. Balance transfers can be used to pay off more than credit card debt and can be made with special checks sent out to credit clients. These checks often have promotional interest rates associated with them to encourage balance transfers from an existing creditor to the creditor offering the transfer.

• Credit Card Services

Credit services may include but are not limited to record-keeping, online credit card processing, billing, special introductory offers, travel insurance coverage, automated teller machine access, and telephone support. Credit card services may be expanded over time to include lower interest rates and/or increased credit limits.

• Fixed-Rate and Low-Rate Credit Cards

Fixed rate credit cards have interest rates that do not change over time and/or the time agreed upon in the credit application. These credit cards can be cost effective if a low fixed rate can be secured. Fixed rate credit cards provide more consistent and predictable credit card expensing. Low-rate credit cards are usually reserved for applicants with good to excellent credit ratings. These cards offer competitive special features such as 1 minute approval, 0% introductory offers, low-rate balance transfers, rewards programs, no annual fees and annual percentage rates between 8%-15%.

• Credit card merchants, Merchant credit cards, and Merchant account services

The businesses that make credit card and credit service offers are credit merchants. Credit card merchants are in the business of offering and selling credit to both customers and businesses alike and facilitate credit services. Additionally, credit card merchants are often banks and/or businesses that also engage in financial services. When a business receives payments from customers who use credit cards, the credit information must be processed using electronic transactions or modem transferred account reconciliations.

The credit card company i.e. merchant account service provider, then credits the merchant with the applicable fees and offers equipment or software technical support. It is also useful to note, a fine distinction exists between merchant credit cards and merchant credit card accounts. The former is an actual card with a credit balance whereas the latter is an account through which a merchant can accept credit card payments. Merchant credit cards are used solely for business transactions.

To summarize, credit services can become quite involved, especially at the business end of the transaction(s) because businesses compete with prices and offer credit card payment options while also having to deal with the credit card merchant at the other end of the transaction. The range of credit services include balance transfers, credit cards with varying benefits and interest rates, business credit cards, merchant credit services, credit card facilitators and account services. Credit agreements outline the details of the credit services in addition to any fees, surcharges, late penalties, benefit rules etc. Such being the case, reading and understanding the credit service terms of service can be beneficial especially with large lines of credit.

How temporary credit cards work

Temporary credit cards include prepaid credit cards and temporary credit card numbers. These cards may require a pin number, expiration or signature for use and in some cases are linked to longer term credit card accounts. The temporary credit cards that are pre-paid do not have credit balances but rather available credit, however, some may be reloaded with new funds. Temporary credit cards offer their holders security, transaction safety and are have less capacity to ruin one’s credit rating than traditional credit cards.

These types of cards are issued by traditional credit card providers such as Visa, Mastercard and American Express, however several online temporary credit card options are also available from financial service providers. An example of a Temporary Gift Credit Card is illustrated at the Visa USA website that provides some of the temporary credit card services discussed in this article.

According to American Express, temporary credit cards that are dubbed credit gift cards are actually ‘prepaid payment devices’. So while an American Express Credit Card may offer a true credit limit, American Express gift cards do not. Nevertheless, these cards are credit cards in the sense they can trace payment history and transaction details like a credit card. Temporary credit cards can be used anywhere where payment for major credit cards are accepted provided the temporary card issue is or is affiliated with these credit service providers and locations.

Advantages and disadvantages of temporary credit cards

There are several advantages and disadvantages to temporary credit cards. Temporary gift cards may restrict use by allowing one time use of the card number only. Moreover, for temporary credit cards linked to real accounts, numbers can be created for one time purchases. Another advantage is the security these cards offer. That is to say, if the card does get stolen, it’s just the card that’s stolen, the money on it and nothing more. Granted, having any card stolen is a disadvantage but payments can still be cancelled and the card replaced according to Visa USA. Some advantages of temporary credit cards are listed below:

Advantages:

• Protect against identify theft
• Require PIN instead of signature
• Safer than cash
• Can be replaced

Gift cards such as the Visa gift card do not have credit limits in the traditional sense of the word. Moreover, temporary credit cards such as plastic Visa gift cards may only be used to purchases as much as the card has been prepaid with. These cards are not necessarily re-loadable as previously mentioned and may carry a small non-refundable balance that requires an exact or larger purchase than the amount of the card to redeem its full value.

Disadvantages:

• Pre-paid credit
• May not always be used for reservations
• Pinless cards can still be used if stolen
• Card expires like regular credit cards

Online vs plastic credit cards

Another version of temporary gift cards are the online version. An example of the online version is illustrated at the Discover card online credit services website. These are not physical cards but rather temporary card numbers that have cash value associated with them. In some cases the numbers are generated when bought and may be have additional value put on the card when its value diminishes. In other cases, the temporary credit card is really an extension of a real credit card number in the sense that it is linked to a real account but not directly and only for a limited time. These temporary credit cards provide security by limiting use of the card especially if a pin number is required to utilize the card for purchases.

Thus, the pin codes that may be present with online temporary credit cards may not be with plastic temporary gift cards which are similar, but not exactly credit cards. Online cards and plastic temporary credit cards may offer liability protection depending on the issuer and processor and there may be a fee associated with both the generation of the online temporary credit card number and the issuance of a plastic temporary credit card. For example, the DeluxeCard Visa gift card from giftcard.deluxe.com has a processing fee for phone orders, card issuance and some shipping services requested with purchases made with the card.

Summary

Temporary credit cards are forms of payment that protect the users identity, may or may not be linked to an actual credit card account and for those that aren’t have a prepaid balance. Plastic temporary credit gift cards are processed by traditional credit card processors and issued by a variety of issuers such as major banks or online financial service providers. Some temporary credit cards require pin numbers for use in addition to the card number whereas others make use of signatures, card number and expiration date for verification and processing.

The fees that come with some temporary credit cards may be a deterrent to their use, but not all fee structures are the same. Such being the case, shopping around for the perfect temporary credit card may be worth it for peace of mind when making large or online purchases over unfamiliar websites.