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Hidden Bank Fees Siphon Money from Customers and Merchants at the Pump
National Association of Convenience Stores1600 Duke Street | Alexandria, VA 22314 Tel. (703) 684-3600 | nacsonline.com
Customer Card Fees:
National Association of Convenience Stores1600 Duke Street | Alexandria, VA 22314 Tel. (703) 518-4272 | nacsonline.com
Copyright ©2012, by NACS All rights reserved. No part of this publication may be reproduced or used in any form or by any means — graphic, mechanical or electronic, including photocopying, taping, recording or information storage and retrieval systems, without the prior, written permission of the publisher.
Hidden Bank Fees Siphon Money from Customers and Merchants at the Pump
Customer Card Fees:
Published April 2012
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Hidden Bank Fees Siphon Money from Customers and Merchants at the Pump . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Convenience Store Industry . . . . . . . . . . . . . . . . . . 8
Background on Swipe Fees . . . . . . . . . . . . . . . . . . . . . 9
Card Fees and Gas Prices . . . . . . . . . . . . . . . . . . . . . 10
Banks make a windfall on increasing gas prices . 10
Swipe fees increase the price of every gallon of gas sold . . . . . . . . . . . . . . . . . . . . . . . 11
Swipe fees are increasing faster than the price of gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
About NACS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
C o n t e n t s
6 Customer Card Fees Report nacsonline .com
nacsonline .com Customer Card Fees Report 7
Gas prices are readily apparent . Drivers see
them on big signs when they drive down
the street . What they don’t see are hidden
“swipe” fees that banks charge merchants
to process credit and debit card transac-
tions . But those swipe fees are a very real
part of the price of gas .
Given current prices, swipe fees may well
cost the average driver more than $30 extra
this year . Higher gas prices create an addi-
tional burden for consumers already wres-
tling with a weak economy, a sickly housing
market and high unemployment .
In fact, if you bought anything from a
convenience store, including gas, you paid
part of the $11 .1 billion in credit-card fees
the industry paid banks in 2011 . That’s too
much and inflated the cost of every single
good in the store .
Customers don’t even know about or ever
see these swipe fees, yet they pay for them
in the form of higher prices for everything,
not just gas, even if they pay cash . In fact,
for everything the average family buys in the
course of a year, it pays another $400 or so
in these hidden, uncompetitive windfalls for
the banks .
Take a closer look at the numbers: At $3 .79
a gallon, the average price of gasoline at
the beginning of March, these card fees ac-
counted for about 6 .6 cents of the price of
each gallon of gas – even if you didn’t use a
card . By the beginning of April, prices rose
to $3 .94 and card fees are about 7 cents on
every single gallon sold in the United States .
Just looking at credit card transactions, the
swipe fees can easily run to 9 or 10 cents
per gallon . For an industry in which over
70% of consumers surveyed say they would
drive an extra five minutes out of their way
to save 5 cents per gallon, these swipe
fees are a very real problem and cannot be
avoided .
This report demonstrates the remarkable
rise in swipe fees, which have grown twice
as fast as gas prices in the last decade .
Higher gas prices, of course, hurt almost
everyone . They impose another hardship on
American families facing a tough job market
and watching the value of their homes drop .
They cripple small businesses, which then
hire fewer people .
Yet since the fees are hidden from consum-
ers and centrally fixed by Visa and Master-
Card, there is little that merchants can do .
Hidden Bank Fees Siphon Money from Customers and Merchants at the Pump
8 Customer Card Fees Report nacsonline .com
The U .S . convenience store industry, with
more than 148,000 stores, posted $681
billion in sales in 2011, of which $486
billion was motor fuel . Convenience stores
sell over 80% of the motor fuels purchased
in the United States .
While 49 of the top 50 convenience-store
chains in the United States are members
of the National Association of Convenience
Stores, the author of this report, the major-
ity are small, independent operators . More
than 70 percent of the trade association’s
membership are companies that operate 10
stores or less . This roughly tracks the indus-
try as a whole . Of the 148,000 convenience
stores in the United States, 63 percent are
owned and operated by someone who only
has one store .
These small businesses inhabit a highly
competitive industry with razor-thin profit
margins . For convenience stores, these bank
fees are their second-highest cost after
labor, higher than rent, utilities and health-
care costs .
In 2011, the industry paid $11 .1 billion in
card fees, a 23% jump from 2010 . Card
fees exceeded industry profits for the sixth
straight year and were 87% higher than
store profits . These fees are a major con-
cern for the industry .
The Convenience Store Industry
nacsonline .com Customer Card Fees Report 9
Background on Swipe Fees
Every time a consumer uses a debit or
credit card, the bank that issued the card
charges the retailer a swipe fee (also known
as an interchange fee) . In addition to swipe
fees, the retailer’s own bank or the company
the retailer uses to process card transac-
tions charges its own processing fee . On top
of that, card networks (for example, Visa
and MasterCard) charge a network fee .
Finally, banks push onto retailers a sig-
nificant amount of the cost of losses from
fraudulent payments, even when the retailer
is not at fault .
Swipe fees, by far the largest part of the
cost of accepting credit cards, are centrally
set by the card networks and paid by the re-
tailer to the bank that issued the card used
in a transaction . Visa and MasterCard set
interchange rates for debit and credit cards,
and every member bank within each of their
networks adheres to the networks’ centrally
set rates .
For debit cards, federal law now limits the
ability of card networks to centrally fix rates
for debit cards issued by banks with over
$10 billion in assets (though banks that set
their own fees, without relying on centrally
fixed rates, are not limited, nor are banks
with less than $10 billion in assets) .
For credit cards, however, Visa and Master-
Card continue to centrally fix swipe fees for
their banks .
Since the 1990s, swipe fees have been
growing out of control . Retailers have no
ability to comparison shop because all the
banks within a card network (Visa or Mas-
terCard) charge the same fees . And the net-
works are so big they won’t negotiate lower
rates . It is take-it-or-leave-it . For merchants
to accept any Visa cards or any MasterCard
cards, which most merchants in most mar-
kets must, they are stuck paying the swipe
fees set by the networks .
The networks have no incentive to decrease
swipe fee rates; the networks “compete” to
make their fees higher, not lower . In fact, it’s
one way Visa and MasterCard get banks to
issue their brand of card . Swipe fees pro-
vide billions of dollars each year to issuing
banks .
Another factor that allows these fees to
increase steadily is that they are hidden
from consumers and, to some extent, even
merchants .
For years, the card networks’ operating
rules (also a take-it-or-leave-it system)
stopped merchants from providing dis-
counts or otherwise showing consumers the
size of the fees everyone was paying .
So most consumers have no idea of the
additional cost built into virtually everything
they buy . In fact, merchants do not know the
cost of accepting a particular card at the
time of the transaction . Visa and
10 Customer Card Fees Report nacsonline .com
MasterCard have hundreds of different
swipe fee rates associated with different
cards .
Generally, high-end rewards credit cards
carry higher rates than non-rewards cards
or debit cards, but there are no electronic
or physical markings on the cards to in-
dicate the swipe fee rate . The merchant
receives a statement of the fees at the end
of the month, but even then it is difficult to
pinpoint which kind of card was used and
why a certain amount was charged .
Federal law and a settlement between the
Department of Justice and Visa and Mas-
terCard have opened up the possibility for
merchants to discount prices for using
cheaper cards and forms of payment, but
this ability is limited because American
Express is fighting in court to be able to
prohibit consumer discounts .
Card Fees and Gas Prices
Banks make a windfall on increasing gas prices
Swipe fees for the gasoline retail industry,
like many other industries, are set as a flat
fee plus a fee that varies with the cost of
the transaction . As gas prices increase,
banks automatically receive more revenue
from each transaction .
When fuel prices go up, banks receive a
windfall without providing any additional
services or value to merchants or custom-
ers . The graph on page 11 below shows the
relationship between the card fees paid by
the convenience store industry and gaso-
line prices since 2003 . The linear relation-
ship between the two figures shows a 99%
correlation between gas price increases
(or decreases) and card fee increases (or
decreases) .
nacsonline .com Customer Card Fees Report 11
Swipe fees increase the price of every gallon of gas sold
Because of the highly competitive and
low-margin dynamics of convenience stores
and gas stations, card costs are eventu-
ally passed on to consumers in the form of
higher prices . In fact, according to a report
by the U .S . Energy Information Administra-
tion at the Department of Energy, 100%
of fuel cost changes in the gasoline retail
industry are passed through to the custom-
er .1 In short, it found that savings as well
as cost increases are ultimately reflected in
consumer prices .
With card industry rules still requiring that
swipe fees be hidden in the prices of all
goods sold, the fees make the price of gas-
oline higher for all customers, regardless of
how they pay . In other words, if a customer
pays with cash, he is still paying for swipe
fees . The magnitude of swipe fees built into
the price of gasoline is significant .
According to industry numbers, based on
average fees and adjusted for card market
Industry Card Fees vs. Fuel Prices, by Year
1 Michael Burdette and John Zyren, Energy Information Administration, Department of Energy, Gasoline Price Pass-through (Jan . 2003), available at http://www .eia .doe .gov/pub/oil_gas/petroleum/feature_articles/2003/gasolinepass/gasolinepass .htm .
12 Customer Card Fees Report nacsonline .com
prices became $4 per gallon, those costs
would be about 7 cents; at $4 .50 per gal-
lon, card costs would be about 7 .6 cents) .
Price differentials of 6 to 8 cents on gaso-
line are important to consumers . According
to a survey earlier this year conducted by
NACS, consumers will considerably change
their behavior to save even a few cents per
gallon on gasoline .2 To save just one cent,
14% of consumers said they would drive
five minutes out of their way . To save 5
cents, 71% of consumers would drive the
extra five minutes and 45% would drive an
extra ten minutes .
$3 .00 $0 .057
$3 .10 $0 .058
$3 .20 $0 .060
$3 .30 $0 .061
$3 .40 $0 .062
$3 .50 $0 .063
$3 .60 $0 .065
$3 .70 $0 .066
$3 .80 $0 .067
$3 .90 $0 .069
$4 .00 $0 .070
$4 .10 $0 .071
$4 .20 $0 .073
$4 .30 $0 .074
$4 .40 $0 .075
$4 .50 $0 .076
FUEL PRICE
ESTIMATED CARD COSTS
1 Michael Burdette and John Zyren, Energy Information Administration, Department of Energy, Gasoline Price Pass-through (Jan . 2003), available at http://www .eia .doe .gov/pub/oil_gas/petroleum/feature_articles/2003/gasolinepass/gasolinepass .htm .
nacsonline .com Customer Card Fees Report 13
What would you do to save?
Even at a savings of only a penny per gallon, nearly a quarter of all consumers (23%) would change their behavior .
* Only asked of those who pay with debit or credit
What would you do to save one cent per gallon? 2012
Take a left-hand turn across a busy street 23%
Pay by cash inside the store* 16%
Drive 5 minutes our of my way 14%
Drive 10 minutes out of my way 7%
14 Customer Card Fees Report nacsonline .com
For a 5-cent savings, more than seven out of 10 consumers would drive five minutes out of their way or take a left-hand turn across a busy street .
* Only asked of those who pay with debit or credit
What would you do to save five cents per gallon? 2012
Take a left-hand turn across a busy street 79%
Pay by cash inside the store* 57%
Drive 5 minutes our of my way 71%
Drive 10 minutes out of my way 47%
To save 3 cents per gallon, nearly one out of four consumers (23%) would drive 10 minutes out of their way . Would this actually save them money? Assuming that the car gets a robust 30 miles per gallon at 45 miles per hour, this 20-minute roundtrip to save approximately 50 cents (a typical fill-up is about 10 gallons) would consume a half-gallon of gasoline, or $1 .75 when a gallon cost $3 .50 .
* Only asked of those who pay with debit or credit
What would you do to save three cents per gallon? 2012
Take a left-hand turn across a busy street 52%
Pay by cash inside the store* 31%
Drive 5 minutes our of my way 40%
Drive 10 minutes out of my way 23%
nacsonline .com Customer Card Fees Report 15
Growth Rate of Card Fees vs. Retail Price of Fuel
Swipe fees are increasing faster than the price of gas
Since 2004, the growth rate of card fees
has dramatically outpaced the rise of the
retail price of fuel . As the figure below
shows, retail gas prices increased by about
80% between 2004 and 2011, while card
fees increased by about 180% . That means
that, even if fuel prices leveled off, card
costs would still increase and add that
much more to the price of gasoline .
Even worse, if fuel prices continue to rise,
card costs will become an even bigger
contributor to the price for consumers . That
means consumers are getting squeezed
more than they know by the credit card
industry every time they fill up – and
merchants have no way to deal with the
pain this inflicts on them .
16 Customer Card Fees Report nacsonline .com
Conclusion
About NACS
Hidden swipe fees are out of control and
have been for years . Retailers are powerless
to do anything as Visa and MasterCard
each centrally fix fees for their banks . The
resulting take-it-or-leave-it choice doesn’t
allow comparison-shopping or negotiation
and means there is no competitive market
pressure to reduce fees .
That’s not just unfair and anti-competitive .
That’s a hardship for small merchants
struggling to survive in a highly competitive
industry and for consumers faced with
tough economic times . Retail is a major
component of the U .S . economy, and
these fees are a large drag on merchants,
especially small businesses .
High card fees (on gasoline and other
products) curtail economic growth, pose a
hardship on businesses and consumers and
dent the economy just as it is showing signs
of reviving . Consumers tell us even a few
cents on the price of a gallon of gas makes
a big difference to them . Meanwhile, those
few pennies add up to a giant windfall for
the banks .
The National Association of Convenience Stores (NACS) is an international trade
association representing more than 2,100 retail and 1,600 supplier company members .
NACS member companies do business in nearly 50 countries worldwide,
with the majority of members based in the United States .
nacsonline .com Customer Card Fees Report 17