News Column

How Your Bank Secretly Profits From Those Burgers on Your Grill (and Everything Else You Buy)

August 20, 2014

WASHINGTON--(BUSINESS WIRE)-- While you’re grilling hot dogs and hamburgers this summer, your bank will be barbecuing the merchants who sold you the food.

Americans will spend about $60 on the average backyard barbecue party with 10 people this year, according to the American Farm Bureau Federation. That’s about $3 more than last year, partly because beef prices are at all-time highs.

Let’s say you put that $60 on your credit card at the supermarket. The bank that issued your card may gouge the store as much as 4 percent to process the transaction. That’s $2.40 in “swipe fees.”

Doesn’t seem like much? Well, two things make it a huge chunk of the merchant’s profits flying right out the window.

First, many merchants – and especially grocers – subsist on a profit margin of less than 2 percent. So the banks may be earning more than the merchant on each sale. (That’s already true, for instance, with convenience stores that sell gas.)

Now let’s consider the bank side: That $2.40 may not seem like much, but it costs the bank only a few pennies to process these transactions. That makes for profit margins – compared to the skimpy margins most merchants earn – of thousands of percent. Swipe fees add up to a cool $50 billion a year going to the banks, much of it windfall profit.

The banks can do this because Visa and MasterCard control the overwhelming majority of the card market, and each illegally fix the fees at outrageous levels so they can lure more banks to their brand. Few consumers have even heard of these egregious fees.

Okay, so now you know. But you’re busy planning a barbecue for 10 people. Why should you care how the credit card market works or how much the banks gouge merchants?

Because merchants compete so fiercely that there’s little room to absorb these ever-increasing swipe fees. So merchants have to pass the cost on to consumers in higher prices. That means you pay more for chips and pickles and mustard and ground beef – and clothes, gas and everything else you buy so the big banks can fatten their profits. That’s true even if you didn’t use a debit or credit card.

These predatory fees hurt retailers, a huge chunk of our economy, which means the banks’ greed not only costs you more at the store but also weighs on our economy and holds down growth.

An economist who surveyed the modest reform brought by the Durbin Amendment, in which Congress asked the Federal Reserve to set reasonable swipe fees on debit-card purchases, found that the savings let merchants create 37,000 more jobs in 2012, the first full year the amendment took effect.

Not to mention that the amendment saved consumers nearly $6 billion. Both these numbers would have been much larger, said economist Robert J. Shapiro, if the Fed had done exactly what Congress intended instead of acceding to heavy bank lobbying and pulling its punches.

These fees grow every year, to the point where they are now many merchants’ second-largest operating cost after labor, before rent or utilities.

Swipe fees are seven or eight times what merchants pay in Europe. There is no reason for this other than that Europe does a better job of preventing Visa and MasterCard from fixing prices.

It’s ironic that Europe would do a better job of maintaining a free market in this business than the U.S., the bastion of capitalism, whose economy grew to the largest in the world on the principle of free markets.

Yet the banks continue to bully American merchants and load these unfair fees on retailers’ backs.

It has to stop. Outrageous swipe fees hurt our retailers, many of them small businesses. They hurt consumers and they hurt the economy.

So, as you fire up the grill, remember the plight of the merchant who sold it to you and the grocer who sold you the food. The big banks are reaching into their pockets – and yours – every time you pay.

And that’s bad for everyone.

For more information about unfair credit-card swipe fees, go to the Merchants Payments Coalition website:

The Merchants Payments Coalition – at - is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses fighting against unfair credit card fees and for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees.

Merchants Payments Coalition

Michael Flagg, 202-253-4164

Source: Merchants Payments Coalition

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Source: Business Wire

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