James Eddy: Credit-card swipe fees cost everyone dearly, need oversight

08/11/2014 8:31 PM

08/11/2014 9:54 PM

My family has operated restaurants since the 1930s. The Eddys have served Kansas City families and visitors to our town in full-service restaurants, a “white glove” supper club, delis, a bowling alley, stadiums, convention centers, and its Popeyes Chicken locations. Being restaurateurs runs in our blood.

One of the third generation of restaurateurs, I came into the industry when technologies were transforming the way we conduct business and interact with our customers.

There is one technology, however, that has evolved into a great hardship for our business as one of its fastest growing expenses: credit cards. The acceptance of credit cards began as a more convenient way for customers to pay, and there was a competitive advantage for early adopters of cashless commerce.

But over the past two decades, accepting credit cards has morphed from a “service” that provides a competitive edge to a “requirement” (like a utility such as gas, electricity, and water) that a business cannot do without; yet the fees associated with what is now a requirement continue to rise unchecked by competition or regulation.

Credit-card acceptance fees charged to retailers have more than tripled in the last 10 years to an average of 2 to 3 percent of the purchase price. That’s the highest in the world and two to six times the regulated rates imposed on Visa and MasterCard in Australia and much of Europe. There’s no reasonable explanation for this increase other than that two dominant card companies control the market and set the fees banks charge.

Improvements in technology and increased card use should be driving costs and fees down. But since there is no competition, and no regulatory oversight, the credit card companies and banks raise the fees whenever they want, however much they want.

Restaurant owners and other merchants have no choice when it comes to accepting credit cards or the onerous swipe fees that come with them; it’s a take it or leave it deal. We are stuck with the terms, the conditions, and the rates set by card companies.

In 2013, we spent about $125,000 on swipe fees, which represents approximately 2.5 percent of each sale. If, similar to many other countries, the United States would regulate the cost of accepting credit cards, we would have saved nearly $100,000 last year, which would have offset rising energy and commodity prices, allowing our company to stave off price increases passed on to our customers.

Growing our business and continuing to serve our friends and neighbors is important to me and my family. But our growth and ability to provide value to our customers is hampered by the unchecked practices of credit card companies.

Just like the utility companies that provide electricity, water, and gas to our locations, we have no alternatives when it comes to swipe fees and no choice but to build them into our pricing. The bottom line is that everything is more expensive because of swipe fees — no matter how you pay.

It’s time for a change to the system. Without the prospect of a more competitive market for credit cards and swipe fees, government must step in.

I don’t suggest that lightly. I’m a businessman. I believe in free markets. But when the market is broken — when there is no competition and nothing else to keep prices and practices in line — something must be done.

Acceptance of credit cards began as a service which offered a competitive edge. But now that a business is at a competitive disadvantage if it doesn’t accept credit cards, the service has become a requirement and therefore needs oversight.

Congress took a good first step when it passed new rules limiting debit card swipe fees as part of the major financial reform bill of 2010. The reduction in fees over the last year allowed us to partially offset increased costs for commodities, fuel, energy, and wages. That made a big difference to our company and the people who eat in our restaurants.

Now, Congress needs to look at credit-card fees. It’s time to put some restraints on the credit-card companies and the banks and bring competition to the market to make sure fees are reasonable and fair.

James Eddy is a member of his family’s third generation in the area restaurant business.


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