Small businesses: Lowering debit card swipe fees will help the bottom line

Rules still being drafted in Washington

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Jai West asks her regular customers at Casa Blanca Café to pay with cash - even checks - so that she doesn't have to pay the credit card and debit card fees.

Sever Steve Detritch, a server, swipes a card through the credit card machine at Casa Blanca Cafe in Augusta.  Corey Perrine/Staff
Corey Perrine/Staff
Sever Steve Detritch, a server, swipes a card through the credit card machine at Casa Blanca Cafe in Augusta.

There is a proposal on the table in Washington, D.C., that can help with the debit-card swipe fee, lowering it as much as 70 percent per swipe.

The Federal Reserve in December unveiled proposed rules that would limit fees to 12 cents per transaction, a drop from the current average of 44 cents. The idea was born out of the financial reform legislation that requires the Fed to impose limits on interchange fees.

"The fees, I think, are high as they are," said the Broad Street coffee shop owner. "Anytime, especially in this economy, that we can lower anything that's hitting small businesses, such as myself, I'm all for it."

Amy Kiel, a co-owner of Hogie Joe's in Thomson, said paying 12 cents per transaction would be a big drop from what she's paying right now. She figures she is paying an average of $1.05 per transaction, but she's not even sure about that because her bill is so confusing.

"It's a ripoff," she said of the fees. "My bill makes absolutely no sense, but there's not much I can do."

Nearly three-quarters of her customers pay by cards, so it wouldn't make sense for her to accept only cash, despite the cost to her of the plastic.

"You would be surprised how many $2 drafts I have to put on cards," she said. "It costs me money every time."

The financial overhaul law requires the Fed to issue final standards by April 21, but there has been hefty lobbying from the banking industry to stop or delay the implementation.

The heart of the argument by proponents is that the new fees would help consumers, and the cost savings could be passed along to customers.

The banking industry, however, says the consumer doesn't pay the fee. It is a negotiated fee between retailers and banks that was implemented to maintain the technological infrastructure.

"The banking system built the interchange fee so that retailers could get their money quicker. And now retailers are looking for any way to make profit. And they've come after this fee," said R. Daniel Blanton, who is in charge of Georgia Bank & Trust and sits on the board of the American Bankers Association.

Blanton said the swipe-fee limits could be worse on the consumer because banks will try to make up the lost income, which would mean more fees to consumers.

Capping the fee at 12 cents would cost banks $14 billion, according to testimony by David W. Kemper, representing the American Bankers Association and the smaller Consumer Bankers Association.

"We would, as an industry, begin looking long and hard at what we're going to do to pick up revenues," Blanton said.

In an effort to replace that lost revenue, banks could stop offering free checking, charge for people to see tellers or charge for the privilege of having a debit card.

Also, some of the nation's biggest banks, including JP Morgan Chase and Bank of America, are reportedly considering an idea that would limit debit card purchases to $50 or $100 per swipe.

"I would like to think the community banks won't ever get to that, but I am a for-profit entity," Blanton said, explaining that even smaller banks would be affected by the swipe fee change.

Blanton said he doesn't expect the fee to remain at 12 cents ; it could be increased to allow for the costs of fraud prevention.

He is unsure whether a propo­sal to have two different fee systems - one for large banks and a different one for small banks - would work.

That would be up to Visa and MasterCard , which would have to figure out whether one customer was using a "big bank" debit card and another was using a "small bank" debit card.

If the proposal to lower the swipe fee goes through, Kiel said, she would be ecstatic.

West would be happy as well.

"It's just a tough time to own any business, especially for small- business owners and especially in the restaurant business, because people don't have to eat out. We're all struggling," she said.

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WW1949 03/06/11 - 01:55 pm
Publish a price and then give

Publish a price and then give a discount for cash or check.What is wrong with that-the customer then has a choice. The fees I am charged run about 3% overall for Visa and MasterCard. My tickets run from $175.00 to $12000.00 or more. I will take the card at the retail price but will not if the price is negotiated or if the customer is shopping and we have to reduce the price by 5-10% to make the sale. If the fees were reduced to 1% overall I would not worry.

katiecaroline 03/08/11 - 09:45 am
WW1949, the discount for cash

WW1949, the discount for cash isn't permissable under Visa and MasterCard regulations. To do so would put the business owner in violation of their V/MC agreement.

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