The enterprise point of view of settlement system fees

In the next few months, congressional legislation is set to lower debit and charge card interchange fees to 12 cents per transaction. Some legislators are hoping to block this rule from going into effect. For small business owners, this legislation wouldn’t improve competitiveness. Instead, these fee limits are what could keep small businesses competitive. Source of article – A small business perspective on payment systems by MoneyBlogNewz.

Charge card fees just to have it

There are card interchange fees. These are any fees using a credit or debit card requires. Otherwise known as “swipe fees,” these fees range between 12 cents and 75 cents and are charged every time a card is swiped. On top of the "interchange fee," a percentage of the transaction is charged. The business that provides the card machine, the financial institution doing the transaction and the card processor are all the things the interchange and percentage fees pay. A lot of money builds up with the fees. It added up to $50 billion in 2010. The U.S. interchange fees are twice and much as Europe's interchanges fees. To be able to stop interchange fees, congress may try to push legislation forward say it would stop competitiveness amongst U.S. businesses.

Business changes based on interchange fees

Taking credit cards can hurt an enterprise. Still, the small businesses have to make the decision on whether or not to take it. Accepting credit cards means paying a fee and a percentage on every credit card transaction, plus most credit card processors charge a monthly fee, so the costs are high. For a small business that runs on tight margins, it’s even worse. Even with accessible alternatives that reduce cost, any small business could have to eventually pass on the cost to consumers through minimum purchases, higher prices or additional charges on card payments. Consumers will make bigger purchases when you will find credit cards while more people are willing to use your shop.

How I work

I own a small business with my husband. We offer many services at the business. We never even considered not taking credit cards knowing it was necessary. Our company doesn't make too much money while we don't even have a physical location. The $20 to $100 monthly fee doesn't make any sense to pay. A flat percentage of transactions are charged with Square where we run our credit cards. It does this through a smartphone. Sales are only at $300 a month. We only pay about $8 in charge card fees each month. The amount to pay suppliers on top of the $30 business taxes and $26 sales tax means less of a profit. We could hire employees and charge consumers less if there were less interchange fees on credit cards. Businesses can go from "surviving" to "competitive" with a decrease in the small percentage points of interchange fees.

Articles cited

Market Watch

marketwatch.com/story/visa-mastercard-rise-on-swipe-fee-regulation-pact-2010-06-21