June 17, 2009
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News: Wal-Mart and Target Take on CC Giants
The recent proposed Credit Card Fair Fee Act puts retail giants Wal-Mart Stores Inc. and Target Corp. in opposition with credit card company magnets like JP Morgan and the two largest payment networks, Visa and MasterCard, over the negotiation of card payment transaction interchange fees. Interchange fees are debit and credit card fees that can run as high as 3% of the sales transaction. These fees cost merchants an estimated $48 billion a year in expenses. The fee is charged by payment networks like Visa and MasterCard and split between the customer and merchant's banks. Retailers are in an outrage because they have no voice in how much or how the fees are set. They say the fees ultimately are filtered down to the end consumer. Retailers supporting the new legislation say they want an opportunity to negotiate lower fees without violating antitrust laws.
Retailers, restaurants, and small businesses supporting the new act say large interchange fees are their second highest expense and they only serve to erode profit and inflate prices. Visa and MasterCard say lower interchange fees will lower earnings and negatively affect the trading of company stocks. While retailers have experience a 9.6% decline in sales in the wake of the recession, both Visa and MasterCard along with American Express Co. realized at least a 14% gain to date this year. JPMorgan who was ranked the top credit card lender in 2008 added 6.25% to their shares. Visa and MasterCard handle approximately 89% of all credit card transactions and virtually have a take it or leave it attitude. Interchange fees account for 19% of card issuing banks' revenue and have tripled in the current decade.
If passed into law, the new legislation would give merchants bargaining power in negotiating these interchange fees and would designate the Department of Justice as arbitrator. Credit card companies would be required to disclose details and distribution of the fees. Senators John Conyers (D-MI) and Richard Durbin, (D-IL) re-introduced the bill on June 4th. It is not yet known when the act will be voted on; however, it is not expected that any action will be taken during 2009.