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Public Policy

Retailers are sharing swipe fee savings but fight is ‘far from over’

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Ever since debit card swipe fees were capped by the Federal Reserve two years ago, banks have made the same unfounded claim over and over – that retailers would simply pocket the savings rather than pass them along to their customers.

Anybody who knows retail knows that simply couldn’t be true. Retail is one of the most competitive sectors of the economy. When retailers find a way to save money, they share it with their customers because they know that if they don’t the store across the street will – and shoppers vote with their feet.

Sure enough, NRF has seen countless examples of how the debit savings has benefited consumers. Some merchants, most notably gas stations, have offered discounts for paying by debit rather than credit card. Others have used the money to lower prices, hold off price increases that would have come with inflation, or offer larger and longer sales. The way the value has been passed along has varied: discounters have focused on price because that’s their customers’ priority. Upscale retailers have focused on service, perhaps adding extra sales associates for more personalized attention.

Unfortunately, the competitive nature of retail also makes retailers a close-mouthed group hesitant to let their competitors know what they’re doing. So, even though they quietly tell NRF, it has been difficult to get retailers to step forward and publicly proclaim what they’ve done with the debit savings. And that’s made it difficult to push back against false claims made by the banks.

Until now, that is.

This week, the Merchants Payments Coalition (founded by NRF and other trade associations in 2005 to fight swipe fees) released a landmark study by internationally known economist Robert Shapiro that finally provides hard evidence of how retailers are, in fact, sharing swipe fee savings their customers.

According to the study, retailers saved $8.5 billion in 2012 and passed along $5.87 billion of that savings to customers. In addition, the savings for consumers led to increased spending that boosted demand for goods and services, while retailers put much of their share into hiring additional workers or business spending that created jobs. In all, 37,500 new jobs were created, both in retail and industries that supply or support retail.

Shapiro, a former advisor to President Clinton, calculated that retailers shared 69 percent of the debit savings with customers, basing the figure on earlier studies of what retailers do when they see cost savings from vendors. One key study involved 23,000 cost reductions at 1,000 stores in more than 30 states.

During a conference call with reporters on Tuesday, Shapiro emphasized that the calculation was on the conservative side: since the debit swipe fee cap is permanent, merchants are even more likely to pass it along than a temporary price cut from a vendor.

Those who have followed the swipe fee debate will recall that NRF has a lawsuit pending against the Federal Reserve arguing that the Fed set the cap far higher than the “reasonable” and “proportional” level directed by Congress. The Fed first calculated that processing a debit transaction costs banks an average of only 4 cents, then proposed a cap of up to 12 cents before finally settling on about 21 cents after heavy lobbying by the banks. Shapiro addressed that issue in his study, saying if the Fed had stuck with the 12-cent proposal, swipe savings would have totaled $12.5 billion and 55,000 jobs would have been created.

A federal judge ruled in favor of NRF this summer, agreeing that the Fed set the cap too high. The Fed has appealed, so the issue won’t be resolved until sometime next year.

Until then, as NRF Senior Vice President and General Counsel Mallory Duncan said this week, “The fight to bring swipe fees under control is far from over.”