Are Interchange Fees Eating Into Your Bottom Line?

Small businesses have long expressed concern that credit-card companies are pushing the cost of card incentives and reward programs onto businesses and consumers through interchange fees, which are used to reimburse credit card firms for processing card transactions.

A group of senators on the Small Business and Entrepreneurship Committee asked the Government Accountability Office to investigate whether these fees are properly disclosed, how the fees are set and for more information on the level of competition in the marketplace.

"While the credit card companies assert that they are helping consumers purchase goods and services, merchants, many of which are small businesses, say the interchange fees charged are too high, not set competitively, and eat into already slim profit margins," said Sen. Olympia Snowe (R-Maine), the top Republican on the panel and one of the authors of the letter.

"To get to the bottom of this dispute, we're asking GAO to look at the facts and assess whether credit card interchange fees are set in a transparent manner in accordance with market principles," she said. "I look forward to reviewing GAO's recommendations to determine whether legislation is necessary to address this issue."

Sen. Tom Harkin (D-Iowa) said the fees are blamed for higher grocery prices while Sen. Benjamin Cardin (D-Md.) said it's necessary to get a balanced review to "determine if merchants have appropriate bargaining power to negotiate fair and reasonable rates with companies like MasterCard and Visa who control the majority of the market."

The lawmakers asked the GAO to provide recommendations on how small merchants can negotiate better fees. They also want to know to what extent interchange fees are required to be disclosed to consumers and merchants, what options small merchants have to reduce the cost associated with payment card acceptance and gauge the level of competition in the interchange fee market.

Small Business Merchants: Do you feel like you have any leverage to reduce the cost of these fees or do they ever prevent you from accepting credit cards because they're too high?

By Sharon McLoone |  July 31, 2008; 10:48 AM ET Watchdogs
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As a seasonal business, we can't afford to take credit cards because of these fees.

Posted by: R.J. | August 1, 2008 10:14 PM

I am a small business owner who accepts credit cards. I unfortunately do not think I can leverage negotiating lower cc fees as we don't do a lot of cc transactions. We like to offer cc as a payment option for the convenience of our clients, however, the cc fees does eat away at our small profit margin. Despite this, if it means we receive payment immediately (by cc) vs. waiting weeks for a personal check... We'd rather bite the bullet and get hit with a cc fee to get payment today. We're really stuck between a rock and a hard place.

Posted by: S. Mendoza | August 15, 2008 9:21 AM

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