AYESHA RASCOE, HOST:
The next time you pull out your credit card to buy something, you should know, you're at the epicenter of a big battle. It's between the place you're shopping and the credit card companies - mostly Visa and MasterCard. To explain, we'll turn now to NPR's Alina Selyukh, who covers retail, and NPR's Chris Arnold, who follows personal finance. Thanks to both of you for being here.
CHRIS ARNOLD, BYLINE: Hey, Ayesha.
ALINA SELYUKH, BYLINE: Hello, hello.
RASCOE: So what is this big battle, and what is it over?
ARNOLD: All right, so what's happening is that there could be a big change coming to the way that credit cards basically work. So every time you pull out your card and you swipe it, your money travels through this, like, underground - well, it's not really underground, but it's, like, this financial plumbing system, and the store has to pay a fee that you don't actually see.
SELYUKH: But the retailers definitely see it. In all the years I've been talking to retailers, this is, like, their No. 1 frustration. It's the swipe fee, which is also called an interchange fee. The stores pay it to credit card companies, which is almost always Visa or MasterCard.
ARNOLD: And actually, if you have a friend who runs a small business, just, like, try bringing up this whole swipe fee thing and see what happens 'cause, I mean, you'll get an earful. Store owners just hate it because they end up paying so much money.
RASCOE: OK. So, Alina, these retailers that you talk to, why do they hate these fees so much?
SELYUKH: They add up. On average, every transaction means a fee of just under 2%. That's an average. Maybe it doesn't sound so huge, but if you're a small grocer, maybe, your entire profit margin might be 5%, you know? I talked to Patti Riordan who runs the Smoke Stack Hobby Shop in Lancaster, Ohio, and she says her store pays almost the same amount in swipe fees each month as she does to rent her entire store.
PATTI RIORDAN: Right now, it's the third largest cost that we have - payroll, rent and swipe fees. People talk about it in terms of it's an employee that you can't hire.
SELYUKH: You know, thousands of dollars in swipe fees. Many retailers eventually have to pass on that cost to shoppers, so they might raise prices. The National Retail Federation argues that Visa and MasterCard are basically a duopoly. The group has been lobbying lawmakers to curb the swipe fees for years. And now there is a bipartisan bill in the Senate that takes a crack at that.
RASCOE: Well, what exactly would this bill do?
SELYUKH: So the goal is to force more competition. For each credit card, banks would be required to give stores a choice of two payment networks. So not just Visa or MasterCard, but maybe also Discover or a smaller company - like, there's one called SHAZAM. And the idea is maybe having this forced second choice would, over time, force everyone to compete on price, maybe lower those fees. A bunch of retailers are behind this bill, including giants like Walmart and Target. And this week, they sent a flurry of letters in support.
RASCOE: But, Chris, like, would this change anything for you and me as we use our credit cards? I use mine all the time.
ARNOLD: Well, that depends on who you talk to you, right? So the trade group that represents Visa and MasterCard, they say, whoa, whoa, whoa, this would be very, very bad. We don't want to do this. And one thing that they say would happen is, you know, rewards programs - which a lot of people like - if these swipe fees go down, like, the amount of money and the revenues go down from that, that it could kill all these points and rewards programs that give you money back on your card and all these different things. So we talked to Jeff Tassi with the Electronic Payments Coalition, which represents the card companies. He says some of that swipe fee helps pay for these rewards programs.
JEFF TASSI: There's not going to be the money to pay for these programs, and most rewards users are really going to miss these things. They're going to be very unhappy, and this isn't an idle - like, some kind of idle threat or bluster that they're going away. I mean, they have to be paid for as part of the system.
ARNOLD: So that could sound pretty bad - right? - like, don't take away my rewards points, you know?
RASCOE: Yeah. I mean, people ain't going to like that.
ARNOLD: No, it's - everybody looks at it like free money. But that's what the credit card companies say. Consumer groups say no, that actually is bluster and threats, and that wouldn't happen because the banks make billions of dollars off of credit cards with late fees and annual fees and high interest rates. I talked to Mike Calhoun with the Center for Responsible Lending - it's a nonprofit watchdog group - and he says, all right, well, if they're making less on the swipe fees, it might affect some of the rewards programs, but those are not going to go away.
MIKE CALHOUN: If this bill passes, it will not be the end of rewards programs. They are one of the most important ways that credit card companies attract and keep some of their most profitable customers. And so they will continue to use that as a way to get those customers and keep them.
SELYUKH: And actually, supporters of the bill often point to Europe and Australia, for example, which have regulated swipe fees - so they are lower than in the U.S. - and their rewards programs seem to be OK.
RASCOE: That's NPR's Alina Selyukh and Chris Arnold. Thank you so much for explaining all this.
ARNOLD: Thanks, Ayesha.
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