Fighting Credit Card Costs

Is there relief ahead for exorbitant credit card fees?

The answer is yes.

But first, there’s a fight to be fought.

According to NACS in Alexandria, Va., credit card payments have grown from 21% of transactions in 1995 to 49% today, with the trend expected to grow to more than 50% by next year. The rates cost industry merchants who accepted cards $6.6 billion nationwide last year. Increased card use for small transactions is also helping to erode profits.

“We hope that 2010 is the year that we do see some relief,” said Jeff Lenard, vice president of communications for NACS. “We’ll take it however we can get it. Essentially, there are challenges and opportunities within Congress.”

With Democrats in control, Lenard pointed out, the legislative outlook has traditionally been less positive towards the convenience store industry. But one of the things that is more positive is the closer look everyone is taking at credit card interchange fees, he said.

“I think that there is hope on the horizon,” agreed Keith Jones, government affairs director for 7-Eleven Inc. in Dallas, which led a consumer petition drive opposing credit card fees that drew 1.7 million signatures.

“Fees having gotten to the point now where they are, frankly, out-of-control,” Jones said. “If you are selling gas right now and the price of gas spikes again, when you factor in the interchange, we will be losing money selling gas. The formula doesn’t work in the c-store industry; it is really unfavorable for low dollar transactions.”

Fighting on Several Fronts
The legislative front is the most obvious and the most public option for reversing the upward trend on card fees. There are multiple bills currently making their way in Congress, all of which would help industry retailers. 

“Chairman (Barney) Frank of the House Financial Services Committee has indicated support for interchange reform. Chairman (Chris) Dodd on the Senate Banking Committee has also indicated support for some sort of interchange reform, so there is a lot of discussion on the Hill,” Jones said. “Politically, 7-Eleven’s management feels the environment is very favorable for something to pass next year before the elections in November.”

What Jones described as a second front is the ongoing civil litigation in the form of class-action lawsuits and potential violations of antitrust laws. “We believe we will see a positive ruling towards the end of this year,” he said.

Jones described the next six months as a critical timeframe for class-action lawsuits. For example, a district court in New York State is due to decide soon whether or not to certify one such class-action suit.

“If it is certified,” Jones explained, “it basically means we have a claim that is actionable. That would be a huge step. That decision was pending and it got put off for some kind of personal reasons; some of the lawyers had issues. But we think that the ruling is imminent, and we feel very optimistic about it.”

The third area, in Jones’ view, is just starting to develop. A number of state attorneys general have indicated an interest in wanting their own antitrust consumer protection investigations on interchange fees and practices from credit card companies. “Who knows where that leads? It’s one of those areas where you just never know,” Jones said.

The final crucial factor is that retailers across all industries appear to be organized as one cohesive unit thanks in part to cross-channel groups like the Merchant Payments Coalition (MPC). MPC ( is a group of convenience stores, supermarkets, drug stores, gas stations, online merchants and other businesses who are fighting against unfair credit card fees.

“Retailers big and small are all together on this issue,” Jones said. “That helps us apply a lot of pressure as an industry. If you put us all together, we are the largest customers for MasterCard and the others. With all this stuff going on you never know what we could achieve. Card companies may be interested in negotiating without litigation, regulation or legislation.”

Finding Solutions
As retailers wait for relief from credit card fees, progressive chains have been diligently developing alternative solutions for reducing costs on their own. Last year, Flash Foods Inc. in Waycross, Ga., introduced what it calls its Go Blue program, which effectively turns its loyalty card into a payment card, according to Chief Information Officer Jenny Bullard. Benefits include savings of three cents per gallon at the pump at the company’s more than 170 stores in Georgia and Florida.

“We’re trying to hit our credit—and even our debit card customers,” Bullard said. “When people ask why we’re going after our debit card customers, I tell them it’s because last year our debit transactions cost us almost as much as the credit-card transactions because of the new fees put in place by Visa and MasterCard.”

While the percentage of sales coming through the Go Blue card has not moved up as fast as the company would have liked, talking to customers about it over the past three months has led to increases. “This is a long-term solution, an enhancement to our loyalty program,” Bullard said. “We’re making the card more beneficial.”

Flash Foods management also wants to entice customers to go inside the convenience store and spend money. Beginning in 2010, Flash Foods will give customers discounts on the money they spend inside against their fuel.

“Today, the credit customer gets a benefit on gas, but we’re trying to move our loyalty program to where that credit customer who just buys gas will not get that discount,” Bullard said. “If they use their credit card in the store, at least they’re buying product with a little better margin on it.”

Taking Action
This is a battle that the industry has been fighting for several years now and one NACS hopes can come to fruition as early as next year. “A wrinkle is that you never know what you don’t know,” Lenard said. “The future could include litigation or legislative activities. Then you just never know if somewhere in between there may be a change in the position that the credit card companies have right now, which is, ‘this is your rate, it is nonnegotiable, and if you don’t like it don’t accept plastic.’”

In addition to developing programs to drive down credit card fees, convenience store chains have been extremely active keeping pressure on the card companies.

“7-Eleven had that wonderful petition campaign in which they delivered almost 1.7-million customer signatures urging Congress to take a look at credit card fees. Circle K has another nearly half a million signatures that will be delivered,” Lenard said. “And NACS is launching a petition campaign with members with which we expect to provide another couple of million more signatures.”

Combined with the lobbying efforts, NACS rolled out a new card processing program at its show this year that offers a charge of only 3.9 cents for all member transactions.

“That’s a small part of credit card fees, but certainly you are seeing the credit card processing rate, whether it’s our program or anybody else’s, coming down,” Lenard said. “You’re saving a little bit.”

The NACS Card Processing Program (CPP) is designed to reduce fees for c-store and petroleum marketers. Retailers
who enroll should receive reduced fees because of the processing efficiencies and the aggregation of their transactions with NACS members and others in the industry. Accepted card types include Visa, MasterCard, Amex, Discover, Diner’s, Online Debit, Voyager and Wright Express.

Looking Forward
There is not a lot retailers can do on their own. “We can try to urge our customers to choose cash instead of credit, but you know the credit card issuing rules are so restrictive,” Jones said. “Unless we get some sort of external action, we’re just not going to be able to manage this expense. For example, when it comes to PIN debit, MasterCard increased the rate in September by 95%, and they can do this willy-nilly. If you ask them, and if they are honest with you, what they tell you is that the reason they do it is because they view their true customers as the issuing banks, not us.  In order for them to gain greater acceptance with the issuing banks they have to provide higher interchange rates.”

On the other hand, a major plus the industry has going for it is that consumers are squarely on its side against an opponent for which few have any love. “Having consumers in your corner really gets the attention of Congress,” Lenard said. “To be successful in grassroots advocacy you need two things: a terrific lobbying effort and grassroots consumer support. I think we have both of those things in place.”

But retailers can still do more.

“Collectively, they can make their voices heard,” Lenard said. Retailers of all sizes can talk to elected officials, talk to their customers—talk to anybody who will listen, and tell them that this continues to be a problem.

“At the end of the day,” Jones said, “Visa and MasterCard are going to look back and realize that they were their own worst enemies. They are going to push the rates to a point where the courts will act, Congress will act or the Federal Reserve regulators will intervene and put a stop to it. I mean, it’s really very difficult to justify the fact that American retailers pay two times the average interchange rates as the rest of the world.

“I’m an eternal optimist,” Jones concluded. “The good news is that you can’t find a retailer out there that is not focused on this, and committed to reform. I’m optimistic.”

Cash Discounts Are Risky Business

Two-tiered pricing on fuel is making a big comeback in major markets across the country. Convenience store retailers may view two-tiered pricing as a benefit, said NACS Vice President of Communication Jeff Lenard, but even that approach is not without challenges.

“If customers don’t understand that you are offering savings through reduced expenses there can be problems,” Lenard said. “There have been cases where customers have seen it as a surcharge for plastic. They will dump you, and we’ve seen instances of it.”

One California retailer with whom Lenard recently spoke reported that he lost about half of his traffic when he switched to cash discounts because the majority of his customers use plastic.

“He quickly realized that it was a bad experiment, so he went to one price—and then cash customers bailed on him. He was ultimately down to about a quarter of his customers.”

It is generally difficult to explain the two-tier pricing at the pump when so many customers don’t pay attention to the signs there. “Whether it’s ‘No Smoking’ or ‘No Cell Phones’ there are a lot of messages at the pump,” Lenard said. “Most people end up staring at their shoes or checking out whoever else is pumping gas rather than reading.”

For this reason, chains like Wawa in Pennsylvania have instituted a guarantee that the price customers see advertised will be what they pay and free of what they call “hidden surcharges.”

Lenard also warns retailers to be careful not to violate card company contracts. He has seen one retailer telling his customers he would not accept credit card transactions for sales under five dollars.

“Well, you can’t do that,” he said. “The credit card companies don’t allow you to do that.”

A better approach is being used by another retailer who has a handwritten note on his counter that reads: “We pay $30,000 a year in credit card fees, and it really hits us hardest when the amount is for less than $15. So we request that for purchases under $15 you pay cash.”

“Bottom line,” Lenard said, “credit card fees remain a challenge, and there really isn’t much else that you can do. You can look at going cash only, but then you’re kind of taking the convenience out of convenience store.”


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