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NEW YORK » The customer isn’t always king. Sometimes he’s just a pawn.
The feud over the so-called swipe fees that merchants pay banks when customers use plastic is reaching a crescendo and will likely hit registers in coming months.
Both sides — merchants and card issuers — insist they’re fighting for the best interests of the consumer. At stake are billions of dollars in swipe fees, otherwise known as interchange fees.
Visa and MasterCard agreed last month to let merchants offer customers incentives for paying with cards that have lower swipe fees. Separately, new regulations this year will cap the debit card swipe fees merchants have to pay.
Banks and credit unions warn that they’ll need to make up the lost revenue elsewhere.
Where the changes leave consumers isn’t yet clear. Here’s what you should know:
Question: What are interchange fees, and why is there so much talk about them?
Answer: Let’s start by clarifying a common misconception. Contrary to popular belief, Visa and MasterCard don’t issue credit cards; they run the networks that process transactions made using those cards. Using a cell phone analogy, think of the companies as operators of the phone lines and networks over which calls are made.
The use of their networks comes with costs. Every time a customer pays with plastic, the merchant pays a fee to the bank or credit union that issued the card, typically ranging between 1 percent and 2 percent of the purchase amount.
Visa and MasterCard don’t get a direct cut of this fee. But they make money through separate deals with the 16,000 or so banks and credit unions that issue cards.
So on one side of the battle line, you have card issuers and payment processors such as Visa, MasterCard and American Express arguing that plastic is convenient for businesses and helps drive up sales — a perk they should pay for. On the other side are merchants who say they’re paying too much and should be allowed to steer customers toward payment options that cost them less.
Q: So what’s different at the register right now?
A: Under regulations that went into effect in July, merchants can legally set a $10 minimum for credit card purchases. This could be inconvenient for anyone who relies on plastic and doesn’t carry cash.
It’s not clear how many merchants will take advantage of the option. You’re more likely to run into new minimums at the corner deli or other small stores.
Some stores had already required a minimum for credit card purchases, but that violated policies set by Visa and MasterCard.
If you’re paying with a debit card, there still shouldn’t be any minimum purchase requirement. Of course, merchants can refuse to accept plastic of any type.
Q: What does the Justice Department’s settlement with Visa and MasterCard mean for consumers?
A: Visa and MasterCard agreed last month to let merchants offer incentives for customers to use a card from a particular network. So, for example, a retailer might offer a discount to anyone who pays with a Discover card, which tends to have lower interchange fees.
Merchants can also state preferences for specific cards within a brand, such as basic Visa cards versus rewards Visa cards, which tend to have higher interchange rates.
Q: Are there any other changes in store that could affect me?
A: The Federal Reserve is expected to propose a new cap on debit card interchange fees in coming months.
Banks and credit unions are already warning that they’ll need to make up the lost revenue in other places, perhaps by tacking on new fees or eliminating rewards programs for checking accounts.
Candice Choi writes about consumer issues for The Associated Press. Write to her at cchoi@ap.org.
