Swipe fees fueling rising costs at the pump

Swipe fees fueling rising costs at the pump

Convenience stores sell more than 80 percent of the motor fuels purchased in the United States, according to the National Association of Convenience Store Owners (NACS). So when gasoline prices soar, convenience store owners and employees often bear the brunt of consumers' anger.

But NACS contends that those unhappy motorists might be better off focusing their attention on another target -- the banks that issue the credit cards they use to make their gas purchases. It says that the high swipe fees (also known as interchange fees) that credit card issuers charge merchants can add significantly to the cost of filling up at the pump.

An April 2012 report from NACS entitled "Customer Card Fees: Hidden Bank Fees Siphon Money from Customers and Merchants at the Pump" tells merchants' side of the story. It contains some interesting figures about what it costs convenience store owners, and ultimately consumers, every time a buyer swipes a credit card to pay for gas.

Fees "out of control"
According to NACS, the convenience store industry paid banks $11.1 billion in credit card fees in 2011, a 23 percent jump from 2010. The report also unveiled these numbers:

• Credit card swipe fees have grown twice as fast as the cost of gas in the last decade. Gas prices increased by about 80 percent between 2004 and 2011, while card swipe fees have increased by about 180 percent.
• Bank fees are the second-highest cost for convenience stores, less expensive than labor but higher than rent, utilities and health care costs for employees.
• When gas is selling for $4 a gallon, card fees account for 7 cents of that cost.

Merchants' hands tied
NACS contends that swipe fees have been "growing out of control" since the 1990s, but that there is little that merchants can do about them. Reforms brought about by the Durbin Amendment recently capped the swipe fees that could be charged for debit card transactions. Yet, when it comes to credit card transactions, there are no such limits.

Business owners who accept credit cards are hit by swipe fees (charged by the issuing banks) as well as network fees (charged by card networks like Visa and MasterCard). The issuers and networks have no incentive to reduce rates, since they receive billions from swipe fees each year. Because issuers receive a certain amount of each transaction, their profits therefore rise with the price of gas. That extra money comes without the banks providing any additional services or value to merchants or customers.

To make things more complicated, it's difficult for merchants to charge credit card-using customers extra to account for the fees. The fees are not the same for every card; high-end credit cards usually carry the highest rates. Yet, according to the report, merchants simply receive a statement of fees each month from their issuers. Because the fees on the statement aren't separated out by card type, it's hard for merchants to pinpoint what they're paying for each transaction and why that amount was charged.

As a result, it's generally simpler for merchants to roll the fees into the overall price of gas -- so customers end up paying them, even if they use cash.

That extra few cents per gallon is important to customers and can make a real difference to a business. A recent NACS survey of those who pay for gas with credit or debit cards found that consumers will change their behavior to cut their costs, driving as much as 10 minutes out of their way to save 5 cents on a gallon of gas.

Yet retailers don't have the same ability to comparison shop. All banks within a card network charge the same fees, the NACS report says, and those networks are so large that they won't negotiate lower rates. As the report puts it, it's "take it or leave it" for merchants.

Large chains might be able to absorb some of the fees, but small convenience stores can't. And that, NACS concludes, means current swipe fee practices are "a hardship for small merchants struggling to survive in a highly competitive industry."

The Durbin debate
For the issuers' part, the banking industry says that fees are part of the cost of accepting plastic. Issuing banks have been hit hard by the Durbin Amendment (which was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act). Capping debit fees is costing them billions. And that, in turn, is causing them to recoup those losses in other ways -- by steering customers toward credit cards, which aren't regulated by Durbin and garner more fees.

NACS, meanwhile, is attempting to win public and legislative support for its proposals to change the way that credit card transactions are processed.

In a fact sheet on its website, NACS praises the Durbin Amendment. But NACS would like to fix the credit card swipe fee problem in a different way. It says merchants should be allowed to choose between a credit card processing program that offers a fixed fee per transaction and one that would charge a certain percentage of each sale.    

Published: May 1,2023