We noted earlier this morning how lenders and credit card issuers were trying to beef up revenues by going back into the sub-prime market. Another way banks and card issuers boost revenue is by increasing fees, though this is less possible under new regulations.
One fee that was not affected by new rules were debit and credit card swipe fees that are charged to the merchant by card companies like Visa Inc. (NYSE: V), Mastercard Inc. (NYSE: MA), American Express Co. (NYSE: AXP), and Discover Financial Services (NYSE: DFS). A new report from the National Association of Convenience Stores (NACS) unloads on these swipe fees for being anti-competitive and for adding a significant amount to customer purchases.
The NACS report focuses on gasoline prices, which it claims are as much as $0.07/gallon higher than the actual cost of the gasoline due to swipe fees. At a cost of about $3.90/gallon for gasoline, a 20-gallon fill-up rakes in $1.38 in swipe fees.
To bolster its case, the NACS asked drivers if they would drive 5 minutes out of their way to save $0.03/gallon. Some 40% of respondents said “yes,” and 71% said they’d drive those 5 extra minutes to save $0.05/gallon. What NACS is probably hoping for is a grass-roots revolt against swipe fees, which would save about $0.07/gallon at current prices with no extra driving.
The swipe fees are not really a secret, and the NACS is doing a clever thing by tying them to gasoline prices at a time when every consumer is constantly aware of rising pump prices. The convenience store industry claims that it paid about $11.1 billion in swipe fees in 2011, money that could either have stayed in drivers’ pockets or gone to the stores’ top lines. The report also points out that even if a consumer pays cash for gasoline the swipe fee “card industry rules still [require] that swipe fees be hidden in the prices of all goods sold.”
The swipe fees are tied to the price of the gasoline of course. As the price of gas rises, so does the amount of the fee. The NACS argues that the card issuer does nothing to earn the higher fee, but just looking at the chart that NACS provides, at $3/gallon the card issuer takes an estimated $0.057, or 1.9%. At $4.50/gallon, the card issuer gets an estimated $0.076, or 1.69%.
While nobody really loves banks or credit card companies these days, most probably figure that the convenience of a debit or credit card is worth something and that a fee of around 2% to pay for that convenience is not unreasonable.
The NACS report is available here.