Credit Card Fees Are an Increasing Concern to American Businesses
October 10 2005
Organizations are unable to refuse credit cards even as the high cost of accepting credit and debit cards becomes a growing concern for American businesses, according to the results of a newly released survey conducted by the Association for Financial Professionals (AFP). Many financial professionals believe their organization would sustain a significant decline in sales if it no longer accepted certain cards, especially those offered by Visa and MasterCard.
The AFP Interchange Survey looked at credit and debit card acceptance for consumer and business-to-business (B2B) transactions, benefits of card acceptance, trends in interchange costs (that is, fees paid by the merchant's bank to the bank that issued the card, which are typically passed back to the merchant), and respondents' views about current interchange issues.
Virtually all organizations that accept credit or debit cards from consumers indicate that they do so to satisfy customer demand. It is the consumers' desire to use a credit card for purchases that makes it nearly impossible for many organizations to refuse to accept them. Half of respondents expect a significant loss of sales if they no longer accepted Visa and/or MasterCard credit cards. For organizations that accept debit cards, the threat from dropping them is almost as great.
While the typical organization accepting Visa and MasterCard — whether from consumer and/or business customers — reports that the blended rate for accepting credit cards has risen by four percent, almost one-quarter report increases of 10 percent or more, including 18% that report a 10-24% increase and 6% that report an increase of more than 25%.
Survey respondents are concerned about the behavior of the credit card associations, with more than 82% agreeing to some extent with the lawsuits filed against the associations alleging price fixing and anti-competitive behavior. Further, whether or not they accept credit and debit cards from consumers, two-thirds of survey respondents favor, to some degree, caps on interchange fees.
"This survey raises serious questions about the competitiveness of the credit card marketplace, an increasingly important part of the U. S. payment system," said Jim Kaitz, President of AFP. "AFP continues to support policies and practices that promote fairness and competition in the major components of our financial system. We will continue to seek out ways to foster greater competition and protect against anti-competitive behavior."
Respondents use a variety of strategies to attempt to reduce costs of accepting credit cards from consumers. More than half (56%) have attempted to negotiate for lower fees, 30% restrict consumer choice to certain cards and 29% request unbundled pricing. A third of organizations that sell to consumers have programs to encourage customers to use the payment method preferred by the seller.
Financial professionals' support lower interchange fees even if it means a reduction or elimination of credit card 'rewards' for card usage by their organization. Seventy-four percent (74%) of respondents from organizations that sell directly to consumers would support lower fees that reduced or eliminated rewards. Even financial professionals whose organizations do not sell to consumers but use corporate purchasing cards support lower interchange rates.
The AFP Interchange Survey was conducted September 13th to September 23rd and 654 financial professionals responded to the survey. Survey respondents represented both organizations that sell directly to consumers and those that do not. Full survey results are available at http://www.AFPonline.org/research.