What Benefits Me by Paying a Credit Card Swipe Fee

What Benefits Me by Paying a Credit Card Swipe Fee? 78 5000 SO THE STRAWHECKER GROU 1234 5678 0910 1000 An explanation of what merchants pay to accept credit cards, why it's paid, and the benefits provided to merchants and consumers E. Munnee How much is a credit card swipe fee? 2.20% Typical credit card swipe fee in the U.S. (Source: Government Accountability Office Who gets paid this fee? Here's the approximate structure of a swipe fee: Cardholder Merchant Payment For purchases of The merchant receives $100 $97.80 Issuing Bank Acquirer Processor Card Brand The issuing bank ensures the bill is paid, manages cardholder accounts, provides customer service, monitors for The acquirer handles all The processor The card brand takes payments related work authorizes and a service fee to for the merchant such settles the funds run the network as contracts, consumer and transmits the fraud and covers fraud losses disputes and risk payment information management Fee: $1.62 Fee: $0.31 Fee: $0.18 Fee: $0.09 + Issuer: 74% Processor: BN Card Brand: 4% Acquirer: 14% If credit cards have these fees, why not just use cash or checks? What are the benefits? In exchange for paying 2.2%, merchants get all of these benefits: Trevor's Tapioca Towm Increased Profits + Consumers spend more with credit + Avoid cash & check handling costs + Payment guarantee Efficiency + Faster funding + Faster checkout times + Faster reporting Risk Mitigation + Fraud monitoring + Avoid bounced checks + Less cash on-hand = less theft Marketing + Access to customer analytics + Better loyalty programs + Targeted offers Market Access 0– + eCommerce + Mobile + Phone Order As as consumer, approve this message By paying with credit cards, consumers get all of these benefits: It's a Loan APPROVED + Buy now, pay later + Interest free if balance is paid off + Lower interest rate with good credit Convenience + Fast checkout times + Online shopping + Automatic transaction reporting Security + Chargeback ability + A card can be replaced, cash cannot + Extended warranties Rewards + Cash back + Miles + Exclusive access Worldwide Acceptance + Accepted at over 35 million locations + No switching currencies + Zero liability if card is lost VIRTUALLY NONE OF THESE BENEFITS COME WITH USING CASH OR CHECKS Why do swipe fees exist? LIKE ANY PRODUCT OR SERVICE, CREDIT CARDS REQUIRE MONEY TO EXIST SWIPE FEES ARE NECESSARY AND COST-EFFECTIVE Infrastructure Card payments require electricity, cables, data servers and workers Funds Availablility Someone's gotta pay for that water jet pack you bought on credit Customer Validation Is that really you buying that jet pack? Visa & MasterCard had 52 Billjon Chargebacks Processes and procedures to handle returns and disputes "This memory foam mattress has no memory, I need to return this." worldwide credit card transactions last year, Fraud Monitoring totaling "Hello sir, we noticed some unusual purchases on your credit card and just wanted to confirm that it was you that made them. Did you recently purchase a water jet pack and 20 front row tickets to the upcoming Bieber Fever concert?* "Oh, I never bought any Justin Bieber tickets, just the jet pack." $4.4 Trillion "No problem sir, you will not be liable for that purchase, we will take care of everything." 000 Worldwide Connection Swipe fees support the authorization network so that someone with a card issued by a bank in Fargo, can visit a business in Laos and purchase a woven rug with that credit card. A transaction can be made anywhere in the world and it will be authorized and validated in just a few seconds Why not regulate these fees? Swipe fee price controls have been imposed in Australia Credit card rewards have gone own Under Merchants have increased profits, but consumers have Lost card rewards and oholces Consumers are paying higher prices due to oheokout fees merchants are able to charge due to the regulations Post regulation, average cardholder fees for standard credit cards in Australia increased by In Canada, where card transactions are more 22% regulated, consumers typically pay around $12 per month for a checking account .............. (2001 - 2004) Another bad idea being pushed by some state legislators (in Washington state and elsewhere) is to put price caps on what credit card companies can charge merchants (i.e., price controls). The credit card industry is highly competitive, with four major competitors and many small ones. Merchants can select which credit cards they wish to accept and they can negotiate fees. " Richard W. Rahn, senior fellow of the CATO Institute and chairman of the Institute for Global Economic Growth Imposing price controls on credit cards may help a few borrowers, but it would raise the cost of having a credit card for everyone else and cut off access to credit for many of the riskiest borrowers. That's no way to be a friend to consumers. Jonathan M. Orszag, senior fellow, Center for American Progress unintended consequences of The Durbin Amendment (This was an interchan.ge cap for odebit cayda) click hoe to len move Non-interest checking Consumers have NOT Small ticket merchants are paying more account fees rose an seen most of the and big ticket merchants are paying less $8 Billion average of For a typical signature debit purchase of $5, 25% merchants now pay over 2% more per in savings that the government intended to be passed on the consumers after implementation sale than they did pre-Durbin NOTE: The cost of accepting credit cards is not 2.2% more than the cost to accept cash and checles. These payment methods have processing costs too. HOW DOES A study by FSU suggests that if a country were to go completely cashless, the PAPER TO PLASTIC? STACK savings could amount to 1% of its annual GDP. That would equal about $150 Billion for the U.S. Average Dollar Value of Payment Type Credit Cards $51 Ashould Merchants prefer cards Cash $24 Sale $1.26 60% → $68 80% a month of consumers have a Average increase in spending from of convenience store Estimated processing cost per paper check rewards credit card consumers that hold a rewards theft can be reduced if credit card with 1% cash back cash in registers is limited *...... ** Plus don't forget there are costs for is the U.S. national average credit card loss rate 5% $343 Billion Collecting, Counting, & Transporting cash Credit issuers take on this risk. Swipe fees help ensure merchants get paid even if the cardholder doesn't pay their bill. If merchants ran their own credit programs, they would absorb this cost 2012 Dante Ristorante in Omaha U.S. B2C eCommerce sales (driven by cards) DANTE found that guests who use 22% a credit card to pay for their RISTORANTE PIZZERIA 10% order spend an average of 10% more than guests who use cash When credit cards became a payment option for NYC taxis, tips on card purchases averaged 22%. Tips averaged 10% during the cash cab only days Governments prefer cards 1 $400,000 The State of Maryland switched from paying unemployment benefits by paper checks, to an electronic prepaid card and saved an estimated $400,000 a year. They were also able to avoid any problems caused by lost and delayed checks The Fed is doing the same $1.03 Cost to issue a federal benefits paper check 5 $75 Billion ..... T Estimated missing tax revenue due to tax evasion via cash use 3 $40 Billion $0.10 6 In estimated cash loss due to theft, counterfeit bills and accidents LO Cost to issue federal 7 $31 Billion benefits electronically Estimated worth of time consumers spend accessing cash U.S. Money Tree LO 8 $750 Million 4 100% To print and deliver money of U.S. federal benefits will be A study from Moody's found that between 2008 and 2012, card usage increased GDP in the U.S. by paid electronically by March 2013 " $127 Billion I infubitabNy concur with these statements .the cost of cash distribution is not reflected in the cost of cash use to consumers, which often creates the erroneous belief that cash is essentially a costless means of making payments. DotEcon I got tired of dealing with theft and paying all the waiters to spend an hour counting all the cash, then I would count it all and then l'd drive it a good 10 miles to the bank. Now, I save a good 45 minutes to an hour per day. At the end of the day, I just push a button and everything goes through and life is good. // -David Hatfield, owner, Bend Municipal Airport Cafe Despite a challenging global economic landscape, the increased penetration of payment cards helped boost consumer consumption and, on average, added to GDP. - Mark Zandi, Chief Economist F Moody's Analytics .merchants' belief that cash is less expensive than other forms of payment may be based on erroneous assumptions and misinformation. - Fred Purches, Stores Magazine A survey from the Federal Reserve in Boston Consumers prefer cards shows that most consumers rate security and ease of use as "most important" for a payment method Percent of U.S. payments by type security ease of use cost (not including other forms of payment) 49% 41% 31% 28% Payment-o-meter The Fed also shows that consumers rate credit cards as more convenient and secure than cash Туре Security Convenience Payment Cards Рaper Cash 2.7 4.0 Credit Card 3.1 4.3 (5-point scale. I Lowest, 5 Highest) Is it worth the 2.20%? The benefits credit cards bring to merchants and consumers are tangible and lengthy. In short, the value outweighs the cost The payments marketplace is more competitive than it's ever been, as the current revenue model that swipe fees provide fuels existing players and incents new companies to enter the market. These new entrants range from start-ups to national telecoms and are developing innovative products for consumers and merchants The global economy undoubtedly performs better due to the frictionless economic exchange electronic payments companies provide THE STRAWHECKER GROUP The Trusted Advisor To The Payments Industry TheStrawGroup.com [email protected] 402.964.2617 y f in Subscribe to NewsFilter: click here or text TSGNF to 22828 Government Accountability Office (GAO) Federal Reserve Bank of Boston (2) THE TRUSTED ADVISOR THE PAYMENTS Visa PaySimple Federal Reserve Bank of Boston (3) Federal Reserve Bank of Chicago Federal Reserve Bank of Boston MSN Visa (2) U.S. Department of Justice MasterCard eMarketer MasterCard (2) CRA International FDIC Dante Ristorante Visa (3) MasterCard (3) The New York Times The Washington Times The Wall Street Journal Bankrate.com Citigroup MasterCard (4) Visa (4) то DotEcon Bank Credit News The Bulletin INDUSTRY Bloomberg Visa (0) American Banker TSG Analysis Florida State University University of Gothenburs STORES Media Federal Reserve Bank of Boston (4) Federal Reserve Bank of Boston (3) Federal Reserve Bank of Boston (o) Sources Processing What Benefits Me by Paying a Credit Card Swipe Fee? 78 5000 SO THE STRAWHECKER GROU 1234 5678 0910 1000 An explanation of what merchants pay to accept credit cards, why it's paid, and the benefits provided to merchants and consumers E. Munnee How much is a credit card swipe fee? 2.20% Typical credit card swipe fee in the U.S. (Source: Government Accountability Office Who gets paid this fee? Here's the approximate structure of a swipe fee: Cardholder Merchant Payment For purchases of The merchant receives $100 $97.80 Issuing Bank Acquirer Processor Card Brand The issuing bank ensures the bill is paid, manages cardholder accounts, provides customer service, monitors for The acquirer handles all The processor The card brand takes payments related work authorizes and a service fee to for the merchant such settles the funds run the network as contracts, consumer and transmits the fraud and covers fraud losses disputes and risk payment information management Fee: $1.62 Fee: $0.31 Fee: $0.18 Fee: $0.09 + Issuer: 74% Processor: BN Card Brand: 4% Acquirer: 14% If credit cards have these fees, why not just use cash or checks? What are the benefits? In exchange for paying 2.2%, merchants get all of these benefits: Trevor's Tapioca Towm Increased Profits + Consumers spend more with credit + Avoid cash & check handling costs + Payment guarantee Efficiency + Faster funding + Faster checkout times + Faster reporting Risk Mitigation + Fraud monitoring + Avoid bounced checks + Less cash on-hand = less theft Marketing + Access to customer analytics + Better loyalty programs + Targeted offers Market Access 0– + eCommerce + Mobile + Phone Order As as consumer, approve this message By paying with credit cards, consumers get all of these benefits: It's a Loan APPROVED + Buy now, pay later + Interest free if balance is paid off + Lower interest rate with good credit Convenience + Fast checkout times + Online shopping + Automatic transaction reporting Security + Chargeback ability + A card can be replaced, cash cannot + Extended warranties Rewards + Cash back + Miles + Exclusive access Worldwide Acceptance + Accepted at over 35 million locations + No switching currencies + Zero liability if card is lost VIRTUALLY NONE OF THESE BENEFITS COME WITH USING CASH OR CHECKS Why do swipe fees exist? LIKE ANY PRODUCT OR SERVICE, CREDIT CARDS REQUIRE MONEY TO EXIST SWIPE FEES ARE NECESSARY AND COST-EFFECTIVE Infrastructure Card payments require electricity, cables, data servers and workers Funds Availablility Someone's gotta pay for that water jet pack you bought on credit Customer Validation Is that really you buying that jet pack? Visa & MasterCard had 52 Billjon Chargebacks Processes and procedures to handle returns and disputes "This memory foam mattress has no memory, I need to return this." worldwide credit card transactions last year, Fraud Monitoring totaling "Hello sir, we noticed some unusual purchases on your credit card and just wanted to confirm that it was you that made them. Did you recently purchase a water jet pack and 20 front row tickets to the upcoming Bieber Fever concert?* "Oh, I never bought any Justin Bieber tickets, just the jet pack." $4.4 Trillion "No problem sir, you will not be liable for that purchase, we will take care of everything." 000 Worldwide Connection Swipe fees support the authorization network so that someone with a card issued by a bank in Fargo, can visit a business in Laos and purchase a woven rug with that credit card. A transaction can be made anywhere in the world and it will be authorized and validated in just a few seconds Why not regulate these fees? Swipe fee price controls have been imposed in Australia Credit card rewards have gone own Under Merchants have increased profits, but consumers have Lost card rewards and oholces Consumers are paying higher prices due to oheokout fees merchants are able to charge due to the regulations Post regulation, average cardholder fees for standard credit cards in Australia increased by In Canada, where card transactions are more 22% regulated, consumers typically pay around $12 per month for a checking account .............. (2001 - 2004) Another bad idea being pushed by some state legislators (in Washington state and elsewhere) is to put price caps on what credit card companies can charge merchants (i.e., price controls). The credit card industry is highly competitive, with four major competitors and many small ones. Merchants can select which credit cards they wish to accept and they can negotiate fees. " Richard W. Rahn, senior fellow of the CATO Institute and chairman of the Institute for Global Economic Growth Imposing price controls on credit cards may help a few borrowers, but it would raise the cost of having a credit card for everyone else and cut off access to credit for many of the riskiest borrowers. That's no way to be a friend to consumers. Jonathan M. Orszag, senior fellow, Center for American Progress unintended consequences of The Durbin Amendment (This was an interchan.ge cap for odebit cayda) click hoe to len move Non-interest checking Consumers have NOT Small ticket merchants are paying more account fees rose an seen most of the and big ticket merchants are paying less $8 Billion average of For a typical signature debit purchase of $5, 25% merchants now pay over 2% more per in savings that the government intended to be passed on the consumers after implementation sale than they did pre-Durbin NOTE: The cost of accepting credit cards is not 2.2% more than the cost to accept cash and checles. These payment methods have processing costs too. HOW DOES A study by FSU suggests that if a country were to go completely cashless, the PAPER TO PLASTIC? STACK savings could amount to 1% of its annual GDP. That would equal about $150 Billion for the U.S. Average Dollar Value of Payment Type Credit Cards $51 Ashould Merchants prefer cards Cash $24 Sale $1.26 60% → $68 80% a month of consumers have a Average increase in spending from of convenience store Estimated processing cost per paper check rewards credit card consumers that hold a rewards theft can be reduced if credit card with 1% cash back cash in registers is limited *...... ** Plus don't forget there are costs for is the U.S. national average credit card loss rate 5% $343 Billion Collecting, Counting, & Transporting cash Credit issuers take on this risk. Swipe fees help ensure merchants get paid even if the cardholder doesn't pay their bill. If merchants ran their own credit programs, they would absorb this cost 2012 Dante Ristorante in Omaha U.S. B2C eCommerce sales (driven by cards) DANTE found that guests who use 22% a credit card to pay for their RISTORANTE PIZZERIA 10% order spend an average of 10% more than guests who use cash When credit cards became a payment option for NYC taxis, tips on card purchases averaged 22%. Tips averaged 10% during the cash cab only days Governments prefer cards 1 $400,000 The State of Maryland switched from paying unemployment benefits by paper checks, to an electronic prepaid card and saved an estimated $400,000 a year. They were also able to avoid any problems caused by lost and delayed checks The Fed is doing the same $1.03 Cost to issue a federal benefits paper check 5 $75 Billion ..... T Estimated missing tax revenue due to tax evasion via cash use 3 $40 Billion $0.10 6 In estimated cash loss due to theft, counterfeit bills and accidents LO Cost to issue federal 7 $31 Billion benefits electronically Estimated worth of time consumers spend accessing cash U.S. Money Tree LO 8 $750 Million 4 100% To print and deliver money of U.S. federal benefits will be A study from Moody's found that between 2008 and 2012, card usage increased GDP in the U.S. by paid electronically by March 2013 " $127 Billion I infubitabNy concur with these statements .the cost of cash distribution is not reflected in the cost of cash use to consumers, which often creates the erroneous belief that cash is essentially a costless means of making payments. DotEcon I got tired of dealing with theft and paying all the waiters to spend an hour counting all the cash, then I would count it all and then l'd drive it a good 10 miles to the bank. Now, I save a good 45 minutes to an hour per day. At the end of the day, I just push a button and everything goes through and life is good. // -David Hatfield, owner, Bend Municipal Airport Cafe Despite a challenging global economic landscape, the increased penetration of payment cards helped boost consumer consumption and, on average, added to GDP. - Mark Zandi, Chief Economist F Moody's Analytics .merchants' belief that cash is less expensive than other forms of payment may be based on erroneous assumptions and misinformation. - Fred Purches, Stores Magazine A survey from the Federal Reserve in Boston Consumers prefer cards shows that most consumers rate security and ease of use as "most important" for a payment method Percent of U.S. payments by type security ease of use cost (not including other forms of payment) 49% 41% 31% 28% Payment-o-meter The Fed also shows that consumers rate credit cards as more convenient and secure than cash Туре Security Convenience Payment Cards Рaper Cash 2.7 4.0 Credit Card 3.1 4.3 (5-point scale. I Lowest, 5 Highest) Is it worth the 2.20%? The benefits credit cards bring to merchants and consumers are tangible and lengthy. In short, the value outweighs the cost The payments marketplace is more competitive than it's ever been, as the current revenue model that swipe fees provide fuels existing players and incents new companies to enter the market. These new entrants range from start-ups to national telecoms and are developing innovative products for consumers and merchants The global economy undoubtedly performs better due to the frictionless economic exchange electronic payments companies provide THE STRAWHECKER GROUP The Trusted Advisor To The Payments Industry TheStrawGroup.com [email protected] 402.964.2617 y f in Subscribe to NewsFilter: click here or text TSGNF to 22828 Government Accountability Office (GAO) Federal Reserve Bank of Boston (2) THE TRUSTED ADVISOR THE PAYMENTS Visa PaySimple Federal Reserve Bank of Boston (3) Federal Reserve Bank of Chicago Federal Reserve Bank of Boston MSN Visa (2) U.S. Department of Justice MasterCard eMarketer MasterCard (2) CRA International FDIC Dante Ristorante Visa (3) MasterCard (3) The New York Times The Washington Times The Wall Street Journal Bankrate.com Citigroup MasterCard (4) Visa (4) то DotEcon Bank Credit News The Bulletin INDUSTRY Bloomberg Visa (0) American Banker TSG Analysis Florida State University University of Gothenburs STORES Media Federal Reserve Bank of Boston (4) Federal Reserve Bank of Boston (3) Federal Reserve Bank of Boston (o) Sources Processing