Credit Card Store Fees / by kevin murray

In today's world, unless you are dealing with a mom and pop store, you are able to purchase your goods whether online or inside the physical store itself with a credit card.  Virtually all stores that accept credit cards accept Visa and Master Card, with most merchants also accepting Discover and American Express.  Those are four biggest players in the credit card issuance and acceptance world, with any other players being far, far behind.  Out of those four companies, Discover Financial Services has the lowest market capitalization at approximately at $28 billion; Discover also has the lowest merchant fees of these four credit card providers.


The use of credit cards within stores cost the stores themselves millions upon millions of dollars in credit card fees that they have to be paid to Visa or similar for the privilege of accepting this form of payment.  In other words, when you purchase a product at a store for $100 utilizing your credit card, the store never gets the full $100, but instead has to give up somewhere around just under 2% to 3.5% on each transaction which is huge percentage taken directly from the top line of these companies.  Of course, ultimately most of that cost is passed onto the consumers, in the form of higher prices for the privilege of utilizing the convenience of their credit cards.  Credit card consumers get some of the extra purchase price rebated to them from credit card bonuses, cash-backs, and the like, which means the consumer that loses out the most is the consumer who purchases his merchandize with cash or cash equivalent, which typically is the poorest segment of America, who aren't considered to be credit worthy.


In an era of high-technology and sophistication, it is surprising that the credit card issuers are able to charge such a high fee to stores without any real fight back.  It is well to remember, that companies such as Visa are in actuality, middlemen, of which they certainly provide a service, but the fee for that service seems wholly out of order with the risk and the service provided.  Additionally, those fees don't appear to be in any downward trend, to which one could make a very strong argument that the economies of scale alone of these credit card issuers should allow them to lower their fees and still maintain a nice, healthy balance sheet.


So the current situation is one in which the stores are giving up income to the credit card issuers, and the consumer is having to pay a higher net price because of the credit card fees that stores pay, with only the middleman coming out like a true winner.  This means that, for instance, the biggest retailer in the world, Wal-Mart must ask the question whether they want to issue their own national credit card that could be used in nearly all stores in the United States, as Sears did with the issuance of their Discover card in 1986 or whether they might instead make a bold and leveraged buy-out of Discover Financial Services in order to quickly level the playing field in short order.


If Wal-Mart was to buy the Discover Financial Services and thereupon encourage other retailers and consumers to utilize this credit card as their card of choice, they would have to noticeably knock down fees, perhaps 50% from the current 2% of so, which would most definitely take significant market share from the industry leaders, this would in turn, force Visa and the like to lower their fees in order to be more competitive.  The net result would be a win for retailers in general, for all consumers, and would force the biggest credit card providers to be more nimble, agile, and reasonable in their efficiency and fee structures.