In a world where more and more people rarely use cash and swipe debit and credit cards for almost every purchase they make, nothing is more annoying than the little sign posted by a cash register notifying customers of a 50 cent fee for using a debit or credit card. Customers feel that they shouldn’t be punished with higher expenses for trying to make purchases with a card that allows them to track their spending and avoid the risks of carrying cash. Merchants feel squeezed as the fees charged by banks and credit card companies allowing them to accept plastic as a form of payment as tripled since the year 2000.

The average fee paid by a merchant for a credit purchase is around 2% of the purchase price. Some of the biggest fees for using credit cards are at fast food establishments and convenience stores where there are high volumes of sales for low dollar amounts. The fees, called interchange fees, generated $48 billion in revenue for banks in 2008. Part of the increase in fees comes from greater costs associated with fraud prevention and protection, but most of the fee is purely profit to a financial institution. There are several ideas that would make these fees more manageable.

- Standardize Fees Among Credit Card Issuers: When banks are trying to decide which card issuer to use with their customers, one of the primary factors in making that choice is the amount of interchange fee revenue that the bank could receive. Forcing all issuers to charge a standardized set of fees could lead to lower fees across the industry when card issuers stop competing for bank business by offering higher transaction fees. Fees are also higher in states with sales tax, since the fee is based on the amount of the purchase including all taxes.

- Allow Businesses to Offer Discounts for Cash Customers: This is allowed in a few areas, but most companies are not allowed to offer discounts for cash customers. When a merchant signs the contract allowing for credit transactions, they have to agree to not offer cash discounts to clients. Banks and card issuers know that most people are paying with plastic today and that merchants don’t want to risk losing customers over not accepting credit cards. Allowing merchants to offer cash discounts would allow them to pack the price of the transaction fees into the goods they sell, something most merchants do already, and still allow the same profit margin for customers using cash.

- Fight for Greater Transparency: The National Small Business Association cites this as the top way to address concerns over interchange fees. If consumers knew how much merchants were paying in exchange for offering the ability to use credit and debit cards, they would be more understanding about paying a fee when swiping their card. If consumers understood how much money was made every time they used their card, they would probably fight for lower interchange fees along with merchants. Instead, most use credit cards at every opportunity to accumulate points and qualify for usage incentives.

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