Are 'Swipe' Fee Cuts Good for Small Business?


The battle over debit card "swipe" fees rages on in the Senate, and it seems small business owners are just as split over which decision would be in their best interest as their lawmakers are.

Right now, the Federal Reserve is seeking to lower the fees from 63 cents to between 7 and 12 cents, but banks are resisting the cuts, saying the move would cost them billions in revenue. According to the Fed, in 2009 consumers used debit cards for nearly 38-billion retail transactions and banks collected more than $16 billion in interchange fees on these purchases.

Todd McCracken, president of the National Small Business Association, said swipe fees are anti-competitive from a small business owner's perspective, and it would benefit many small business owners if the fees were cut.

"Small business owners have to pay the fees, and aren't in the position to negotiate for better ones," McCracken said. "We are not in favor of having big government come in, but we need to have a marketplace that makes sure these fees are reasonable. Clearly the market is broken, and we need to get back to a market where the banks listen to the retailers."

Raymond Keating, chief economist of the Small Business & Entrepreneurship Council, said the council differs from many small business advocacy groups in its opinion of the swipe fee debate, stating he doesn't believe the cuts would benefit small business owners. Price controls, regardless of what industry, are a red flag for Keating.

"Whenever you get price controls into the system and market, there are inevitable costs, the product is reduced, investment and innovation are reduced, and there is cost-shifting going on," he said. "From a small business perspective [fee cuts] may sound good the first time around, but when you look at the costs involved whenever government stick its nose in—there are going to be problems."

The NSBA is not in favor of fees being reduced too much, however, because, according to McCracken, that would backfire on small business.

"Then consumers would use credit cards instead," he said.

Keating said retailers and merchants have benefited tremendously from the convenience and popularity of debit and credit cards, and swipe fees are in no way "anti-competitive," as many believe.

"There are choices for consumers and merchants—if anything choices are expanding in the payments industry," he said. "The reality is that because more people are choosing to use debit cards, the more revenue is being taking in. That goes back to convenience, and benefits merchants get from this payment route."