Today HLF released an analysis examining the cross-subsidy effect of the interchange fees, often called ‘swipe fees’ that retailers make to payment card networks for processing consumer purchases.
Every time a credit card is used to pay for goods or services across the United States, a fee is charged to the business that takes the card. These fees amount to more than $130 billion each year. This study shows that rewards programs offered by the credit card industry and funded by these fees disproportionately benefit higher income earners at the expense of lower-income Americans. Credit card interchange and the shifting of benefits to higher income cardholders, entrench the existing credit card system, suppress competitive payment alternatives, and reduce the efficiency of the U.S. economy.
The original research underpinning this study includes a survey of more than 2400 U.S. consumers and their spending patterns and credit card usage as well as analysis of transaction data. The data and analysis unmasks some of the hidden problems with credit card swipe fees. Today’s card industry systematically makes life more financially difficult for lower income Americans and hurts the economy.
Since retailers usually charge the same price regardless of payment method, payment card rewards programs with different levels of rewards effectively cause some customers to subsidize the consumption of others. The research presented confirms that households with income less than $75,000 per year collectively transfer over $3.5 billion to those making more than $75,000 per year.
Furthermore, the cost of interchange fees to retailers can be significant, especially in competitive sectors such as gasoline and groceries. This study demonstrates that interchange costs are typically about 17 to 19 percent of retailer profit. Variance in these costs may induce risk-averse retailers to set higher prices, thus generating additional economic inefficiencies and hurting retail consumers.
Read the full report.
