I have been getting on a plane here in Texas and flying to Washington for a decade to talk to legislators or testify before Congress. And what I tell them is that one corner of our economy looks more like the old Soviet Union than the free market that created the biggest economy on earth.
That corner is credit cards. Most people have no idea that the banks gouge merchants every time somebody uses a credit card. They can do this because Visa and MasterCard control the vast majority of the market for credit and debit cards. They each fix rates so that the banks that use their brands can charge these huge fees with little competition to curb their greed.
Most people have no idea these “swipe” fees raise prices for consumers on everything from gas to groceries to garments; hurt small businesses; stifle growth and new jobs; and hurt our broader economy. Because they’re hidden from people — seen only by merchants and the banks that exploit them — and because the banks have so much money and influence, it’s almost impossible to make the banks charge fair and reasonable fees.
With no competition in the card business, merchants simply have no option but to take the haircut.
In my business — among other things, my family owns 20 gas station/convenience stores in the suburbs north of Dallas — the banks take more in these swipe fees out my small chain, $100,000 a month, than we make in profits. In fact, we have never made more than the banks on my stores, despite the fact that all the risk, all the investment in time and money, all the hard work is mine and my family’s.
It’s not just us. The entire convenience store industry pays out more in swipe fees than it earns, a staggering $11 billion compared to $7 billion in convenience store operating profits last year.
Unbelievable as it may seem, swipe fees are now my second-highest operating cost, after labor — higher than rent, higher than utilities. And that’s true for many merchants these days.
What’s more, as the banks rake in bigger profits every year, the cost of processing these transactions — thanks to huge increases in volume and advances in technology — continue to shrink.
It’s so bad that as banks charge up to 4 percent of a credit-card purchase in swipe fees, the bank will grab $4 on a $100 purchase. Yet it costs the bank only a few pennies to process that transaction.
Meanwhile most retailers face hyper-competitive markets where profit margins run closer to a skimpy percentage point or two than the 10,000 percent the banks are gobbling up.
And with the banks such a monolithic influence, things aren’t likely to change soon. Consider the debit-card reform section in the 2010 Dodd-Frank bill to curb bank abuses: It has brought some fairness to debit-card fees, but would have brought much more had the Federal Reserve not undermined it with the encouragement of the banks.
I’ll tell you an example of the banks’ power and arrogance. In 2008 I went to Washington to testify before the Senate Judiciary Committee. I mentioned the banks imposed a 1,500-page contract on merchants that we weren’t allowed to read. The chairman demanded the banks produce it. The banks took more than a year to comply with this simple request.
And that’s why I’m writing this: Because Americans need to know how the banks are squeezing the stores people patronize — and the people themselves in the form of higher prices. My prices are on a big sign up high over motorists’ heads, where even from a long way off they can see and compare them to my competitors’.
Not so in banking.
Perhaps the more light we can shed on this murky industry, the more we can reform it and make it fairer.
Until then, though, we merchants — and you consumers — are stuck with the kind of uncompetitive, unfair and outrageous behavior that goes against everything that is best in our free-market system.
BILL DOUGLASS is chairman of the board of Douglass Distributing Company, which is headquartered in Sherman. He has been involved in national retail issues for decades as an officer of the convenience store trade association, NACS.
