Grocers compete, so why can’t credit card companies?
As third-generation grocers, our family works every day to deliver the best value and lowest prices to our customers, whether it’s at our supermarket or convenience store locations. We negotiate with vendors and suppliers, and pass along the savings because we know how challenging it can be for many people to put dinner on the table in these economic times.
Unfortunately, there is one cost where the vendors refuse to negotiate. Visa, Mastercard and the Wall Street banks that issue credit cards under their brands offer their services on a take-it-or-leave-it basis. And, with few consumers using cash today, we cannot turn away credit cards.
Most consumers aren’t aware of it, but the “swipe” fees banks and card networks charge merchants to process credit card transactions average 2%-4% of the purchase amount. These fees add up quickly and — depending on the credit card and the size of the shopping trip — can equal the price of a gallon of milk or a dozen eggs on a typical cart of groceries.
Credit and debit card swipe fees have more than doubled over the past decade and skyrocketed $22 billion last year, to a record $160.7 billion, including $323.6 million in Delaware. They are most merchants’ highest operating cost after labor and drive up prices by more than $1,000 a year for the average family, according to the Merchants Payments Coalition.
These fees go nowhere but up because of lack of competition. Visa and Mastercard — which control 80% of the market — each centrally set the swipe fees charged by all banks that issue their cards. They further block competition by restricting processing to their own networks, even though others could do the job for less and with better security.
That’s the bad news. The good news is that legislation has been introduced in Congress that would address these fees by putting an end to Visa and Mastercard’s monopoly over processing. The Credit Card Competition Act would require the largest banks to enable credit cards to be processed over at least two unaffiliated networks. One would still be Visa or Mastercard, but the other would be a competitor like NYCE, Star or Shazam — networks that have efficiently and safely processed debit card and ATM transactions for decades.
Adding a second network would create competition over fees, security and service that is expected to save merchants — and their customers — $15 billion a year, with no changes in which cards consumers use and no loss of credit card rewards. Security would significantly improve since the Federal Reserve says the competing networks have one-fifth the fraud of Visa and Mastercard.
If this bill is passed, we plan to pass these savings along to our customers in terms of pricing, both to be competitive in our market and because it’s the right thing to do. And other grocers will likely do the same — grocery is the most competitive sector of the nation’s economy, and if one store does it, the one down the street most certainly will.
Our family has been competing over price, quality and service since our grandfather opened his first two small supermarkets in Reading, Pennsylvania, in 1970. Isn’t it time for the credit card industry to do the same?
With Visa and Mastercard already planning to raise swipe fee rates another $500 million, it is urgent that the Credit Card Competition Act be passed by Congress. Action could come soon in the Senate.
Ryan Redner is CEO and his cousin, Gary Redner, is chief operating officer at Redner’s Markets Inc., an employee-owned company based in Reading, Pennsylvania, that operates 44 supermarkets and 24 convenience stores in eastern Pennsylvania, Maryland and Delaware.
