Last week, the Government Accountability Office (GAO) released its report on interchange as required by the CARD Act that was enacted earlier this year. Read the full report here.
Some merchant groups like the National Association of Convenience Stores (NACS) released statements praising the report (read full statement). The statements goes on to say, “The GAO confirmed key problems that we have raised about credit card interchange fees, also known as ‘swipe’ fees,” said Lyle Beckwith, NACS senior vice president of government relations. “They found that the 10 largest banks have a stranglehold on this market, have used it to raise their fees, which all consumers pay, and that small businesses and low-income, cash-paying consumers get the worst deal from this arrangement.”
The GAO report detailed four main options to regulate interchange (see Appendix II):
- Limiting or Capping Interchange Fees
- Requiring the Disclosure of Interchange Fees
- Loosening restrictions on Merchants for Card Acceptance
- Allowing Merchants and Issuers to Directly Negotiate Interchange Fees
The GAO concluded that each option would have a mixed impact on cardholders and present implementation challenges. Furthermore, the GAO stated consumers could benefit if interchange regulations were adopted and merchants reduced prices for goods and services, but identifying any such savings would be difficult.
The report noted that the acquiring market was competitive and cited a 2007 Federal Reserve Bank of Philadelphia study that stated approximately 1.4 million merchants changed acquiring institutions each year. We also believe the acquiring market is competitive but unlike other services that business purchase, credit card processing is exceedingly complex for the average buyer.
While any type of legislation could be years away or never materialize, there are still significant opportunities for merchants to reduce they credit/debit card processing costs. Some of the industry best practices are least cost routing for debit transactions, interchange management, optimal pricing agreements with acquirers, and introducing alternative payment products.