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Credit card industry squeezes small business
Chicago Sun Times ^ | 10/4/2013 | Maruti Seth

Posted on 10/06/2013 5:01:28 PM PDT by Borges

I’m a serial retailer. For most of my adult life I’ve owned and operated gas stations, convenience and liquor stores, and now a small group of Burger King restaurants. It’s been a unique perch from which to watch the “plasticizing” of America and how credit card companies and the nation’s biggest banks are allowed to operate like a cartel and, as a result, drive up the price of goods and services.

When I opened my first store in 1994, cash was king and “charge cards,” as they then were called, were status symbols held by a tiny number of affluent customers. When I served my first burger just 10 years ago, the fast food business was cash only. No more.

Today, almost everyone carries at least one credit or debit card that they routinely use for purchases of every size, and many people, about a third of my customers, freely use them instead of cash. But cards aren’t free.

Every time a credit or debit card is swiped, the big banks that own the big payment card companies like Visa and Mastercard charge the business taking the card a fee — usually 2 to 3 percent of the total sale. The bigger the sale, the bigger the banks’ windfall since it doesn’t cost any more to process a big transaction than a little one. Perversely, the banks have even figured out how to make their highest swipe fee margins on the tiniest sales! On small transactions, which are subject to high fixed fees, my customers and I get hit 3 or 4 times harder than usual. A $2 “Dollar Meal” order, for example, puts a 9 percent cut in these companies’ pockets. This isn’t about pennies.

Last year, swipe fees were my biggest expense after meeting payroll, buying food and supplies and paying for utilities. Put another way, in a business where margins for me and my fellow franchisees usually run between 1 and 3 percent, 1 to 2 percent of my total revenues last year went to pay swipe fees.

That’s real money that isn’t going back into my business to hold prices down, up employee hours or hire new people. Multiplied by millions of small businesses like mine, that’s at least $50 billion every year that’s lining the pockets of big banks instead of boosting America’s economic recovery.

In fact, a recent economic study conducted by Robert Shapiro of Sonecon LLC, an economic analysis firm, found that reducing debit and credit swipe fees to 12 cents and 24 cents respectively per transaction would put $34 billion back into the hands of consumers and create more than 154,000 new jobs annually.

Worse yet, since together Visa and Mastercard control 80 percent of the payment processing market, swipe fees will keep going up and up unless the people who make and enforce our competition laws do more to end their stranglehold on the market. They’ve got more than enough grounds to act.

In 2010, Congress told the Federal Reserve to look into debit card swipe fees and make sure fees were reasonable compared to what a sale actually costs the card companies. Somehow, after finding that the real per-transaction cost was only about 4 cents, the Fed decided to let card companies charge up to 6 times that much! Fortunately, a federal court this summer found that the Fed had ignored Congress’ clear instructions and ordered the agency to recalculate maximum debit fees based on banks’ actual costs.

Meanwhile, European authorities also looked into the true cost of processing debit and credit card sales. They recommended that swipe fees in the EU should be just 0.2 to 0.3 percent of the sale. Banks in the U.S. get away with charging up to 10 times that much. In retail, there’s a word for that. It’s called gouging.

As a businessman, I’m certainly not saying that “paying with plastic” provides no benefits to business, or that Visa and Mastercard shouldn’t make a fair profit themselves. That’s not the way the economy and free markets are supposed to work. I am saying that with two behemoths controlling 80 percent of it and keeping fees hidden, the payment card market isn’t free and isn’t working.

Once regulators restore it to balance and increase transparency, they and consumers can expect fierce competition in virtually all spheres of retail to convert illegitimately high swipe fees into consumer savings, job growth and employee benefits. With more and more of my customers — and every other American small business’ customers — using more and more kinds of payment cards every day, there’s no time to lose.

Maruti Seth owns and operates nine Burger King franchises in East Central Illinois.


TOPICS: Culture/Society
KEYWORDS: creditcards
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1 posted on 10/06/2013 5:01:28 PM PDT by Borges
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To: Borges

Its good to have a monopoly


2 posted on 10/06/2013 5:06:26 PM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: Borges

He’s running on 1-3% margins?


3 posted on 10/06/2013 5:11:58 PM PDT by blueunicorn6 ("A crack shot and a good dancer")
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To: Borges

He should give cash discounts. I remember when retail clerks used to ask “Cash or charge?” There are some retail oil companies that give a discount if you use their card. They don’t have to pay a fee to themselves.


4 posted on 10/06/2013 5:12:03 PM PDT by VerySadAmerican (".....Barrack, and the horse Mohammed rode in on.")
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To: Borges

Too bad. When I eat at Burger King (every year or two) I pay cash. If he doesn’t like it, he should tell Burger King to issue their own credit card. I always pay $40-50 cash at my local gas / convenience store because it is not a chain and I don’t want them losing 2% when their gas margin is only a few percent. The main reason is they are 3 miles away and the next nearest is 7 miles.


5 posted on 10/06/2013 5:12:17 PM PDT by palmer (Obama = Carter + affirmative action)
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To: Borges

Our local store charges extra if you use a credit card on small purchases. And several of the restaurants we go to in town do the same thing.

I use a credit card because it’s a lot more convenient than carrying a lot of cash around. But that may change, as the banks charge more and more for the privilege.


6 posted on 10/06/2013 5:17:00 PM PDT by Cicero (Marcus Tullius)
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To: Borges
Amex is the worst. They hold the merchant's money for up to 5 days after the sale and profit from the float - and their swipe fees are higher than Visa and MasterCard. Getting them to provide documents when necessary is like pulling teeth. And they like to promote Small Business Saturday and other such feel-good garbage, when they are the single most anti-small business entity in existence...this side of the Federal Government.

High net worth customers like to use Amex, though, so refusing to take it is not a good option.

7 posted on 10/06/2013 5:19:10 PM PDT by Mr. Jeeves (CTRL-GALT-DELETE)
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To: Borges

So pay cash.


8 posted on 10/06/2013 5:19:49 PM PDT by RKBA Democrat (Power disintegrates when people withdraw their obedience and support)
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To: palmer
I think debit cards ave smaller fees.

At some gas stations' pumps I get the cash price when using a debit card.

9 posted on 10/06/2013 5:21:45 PM PDT by Paladin2
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To: Borges
The real reason this is happening is because the government has engineered a massive consolidation of the banking industry. There aren't any mid sized regional banks anymore. There are a few small town independents. Then there are the megabanks.

When I was in retail back in the 70's we used to play banks off against each other to get lower rates. Our McVisa rate at one time was only 0.79 percent. A regional bank in Florida gave us a merchant account at that rate even though we were a Houston retail company.

10 posted on 10/06/2013 5:22:28 PM PDT by SeeSharp
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To: VerySadAmerican

Some merchants do that. But technically it’s a violation of their merchant agreement. The bank could terminate the merchant’s account for it.


11 posted on 10/06/2013 5:25:07 PM PDT by SeeSharp
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To: Borges
This really shouldn't affect retailers at all as they can simply increase their prices to cover the fees.

The credit card companies need to make money too and they provide a valuable service by making it unnecessary for consumers to carry around cash.

12 posted on 10/06/2013 5:28:45 PM PDT by SamAdams76
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To: Paladin2

I think the government regulated those recently. That should have been left alone just like credit cards. Once the fees are high enough the market will create cheaper alternatives especially in the age of the internet.


13 posted on 10/06/2013 5:29:33 PM PDT by palmer (Obama = Carter + affirmative action)
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To: Borges

Bit of an over statement. I’ve had a charge card since the early 1980s and was most certainly not a member of an any small club of “affluent customers.” then. I am not today, as well. That said, I’ve never used a credit card at a fast food joint.

“When I opened my first store in 1994, cash was king and “charge cards,” as they then were called, were status symbols held by a tiny number of affluent customers.”


14 posted on 10/06/2013 5:30:33 PM PDT by Henry Hnyellar
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To: Borges
There is no one forcing you to accept plastic.
Go cash only and take checks if you want. Or set a minimum amount for card use. $5.00 - $10.00. A common practice. As a former owner of a retail store, I gladly accepted the cards. Especially the debit cards, since I could eliminate bounced checks and the expense and hassle they caused.
But I know of many small stores and restaurants that only accept cash or checks for the same reason you stated.Most say it works out fine. Plus that makes it easier to sell a lot of sam-iches OTB.
15 posted on 10/06/2013 5:34:29 PM PDT by Tupelo (Snatching Defeat from the jaws of Victory, an old Republican Tradition.)
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To: VerySadAmerican
in NY it's illegal... they tried that a couple years ago with gas and there was a lot of trouble over it
16 posted on 10/06/2013 5:52:15 PM PDT by Chode (Stand UP and Be Counted, or line up and be numbered - *DTOM* -vvv- NO Pity for the LAZY)
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To: Mr. Jeeves

Our business did NOT accept Amex.

For one, it was too easy for the customer to dispute the charges (which some do to try and scam you) and it was hell trying to get paid after a claim like that.

Plus the fees. We gave it up a dozen years ago. Visa, MC, and Paypal, check, money order, or cash (which we offered a 10% discount for) were our offerings. Take it or leave it, or find another contractor. We also did our financing through our own credit union / bank for big jobs. Too much risk for us to do the financing.


17 posted on 10/06/2013 5:58:03 PM PDT by esoxmagnum (The rats have been trained to pull the D voting lever to get their little food pellet)
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To: Paladin2

I think debit cards ave smaller fees. “

If you are a merchant that accepts credit cards there are all kinds of fees that are charged, depending on the means you use to process the card. The new Square charges a flat fee regardless. On-line terminal input of recurring charges charges less for debit cards but way more if a card has a special program linked to it - like the airline mileage accumulator. Just depends and there is no way to tell what the percentage will be until you check your monthly statement.

Convenience matters more to customers than what the merchant is being charged - unless you happen to be one of those merchants.


18 posted on 10/06/2013 6:10:04 PM PDT by Grams A (The Sun will rise in the East in the morning and God is still on his throne.)
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To: VerySadAmerican

He should give cash discounts. I remember when retail clerks used to ask “Cash or charge?” There are some retail oil companies that give a discount if you use their card. They don’t have to pay a fee to themselves.


I agree,,,,but some states now have laws to prevent this, and, the credit card companies will not allow you to do this in their contracts w stores.

Some of the immigrant stores still charge less for cash...but most are prevented from laws and credit card/bank contracts


19 posted on 10/06/2013 6:14:31 PM PDT by SeminoleCounty (Fact Is: GOPe want ObamaCare.)
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To: Borges
The guy's right. I remember several years ago WalMart got turned down from forming an industrial bank. They would be their own credit card processor and save themselves (and consumers via lower prices) millions of dollars. Naturally, the Congressional Rats voted it down.

This is all part of crony capitalism, and what happens when governments sticks its nose into the markets.

20 posted on 10/06/2013 6:40:50 PM PDT by Extremely Extreme Extremist (Governor Sarah Heath Palin for President of the United States in 2016)
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