NRF And EPC's Swipe-Fee Flame War: Full Of Sound And Fury, Signifying Nothing

The NRF and the Electronic Payments Coalition (EPC) have launched what is essentially a flame war over the swipe surcharges that are allowed under the interchange settlement as of January 27. NRF launched the first broadside, calling surcharges a "ridiculous concept" and deriding "propaganda" suggesting any retailer would use them. EPC fired back on Tuesday (Feb. 5), calling NRF's statements "false and misleading."

This isn't complicated—the retailers most likely to adopt swipe-fee surcharges are the ones currently offering discounts for using cash, and that group doesn't include most big chains. But NRF is also fighting the interchange settlement and EPC is supporting it, which goes a long way to explain some otherwise pretty incomprehensible flaming.

First came news stories last month announcing that, as of January 27, merchants could start adding a surcharge for transactions using a credit or debit card under terms of the interchange settlement. Then came follow-up stories with predictable denials by Walmart Walmart (NYSE:WMT), Target (NYSE:TGT), Macy's (NYSE:M) and Sears (NASDAQ:SHLD) saying that they weren't going to slap customers with a new fee.

Then NRF weighed in with a January 30 statement. "The ridiculous concept that merchants will start surcharging on any widespread basis is propaganda being spread by the card industry in an attempt to divert attention from their skyrocketing swipe fees," said NRF General Counsel Mallory Duncan. "We have discussed the settlement with many of our members and other merchants, and not a single one has said they will surcharge."

NRF also described the surcharge as "theoretically allowed" by the settlement. "National and regional chains don't want to surcharge and probably couldn't," Duncan added.

On Tuesday (Feb. 5), EPC returned fire to correct "false and misleading statements made recently by the National Retail Federation," including NRF's argument that chains don't want to surcharge. "Is it true, as stated by the NRF, that merchants and their trade organizations did not want the ability to surcharge? No, that is not true. Both merchants and trade organizations demanded the option of surcharging as part of the settlement agreement."

The EPC statement went on: "Previously, both Visa (NYSE:V) and MasterCard (NYSE:MA) had longstanding rules that prohibited this practice, and reluctantly gave up this 'No Surcharge Rule' as a compromise in order to settle the lawsuit. In fact, retailers have been asking for the ability to surcharge for years, as stated in testimony before Congress, in letters to California in relation to its surcharging ban, and outlined in the settlement agreement."

Of course, neither NRF or EPC are owning up to the obvious: Customers are already paying swipe fees.Of course, neither NRF or EPC are owning up to the obvious: Customers are already paying swipe fees—they're just cooked into current prices. And no retailer would just start adding a surcharge. First, the merchant would announce lower nominal prices and then jack them up with swipe fees.

In other words, the prices customers pay at retailers with a surcharge would likely be exactly the same as they are now at merchants offering a discount for cash. Those prices would nominally be lower than at no-surcharge chains, but the practical effect would mostly be no change.

But pointing that out is not in EPC's interest—it's not in the paying-cash business. Nor is it in the interest of NRF, which is trying to torpedo the interchange settlement. Besides, most chains like plastic just fine, while cash has its own downsides. The chains just don't like interchange.

There's one interesting exception to this cards-versus-retail dynamic: Grocery chains were a driving force behind the lawsuit that led to this interchange settlement, and the biggest of them, Kroger (NYSE:KR), has said it might think about charging extra for using plastic sometime in the future. But that's not so surprising. Grocers were very late in accepting payment cards compared with other chains, and grocery remains a very cash-friendly business.

Grocery is also one of the most price-sensitive areas of retail, so if a pure-play grocer can cut shelf-tag prices by 2 percent, that's an advantage over Walmart. Adding a swipe surcharge and installing an ATM to encourage customers to pay cash and get those lower prices probably sounded like a good option to have. (In grocery these days, anything that offers an edge over Walmart (NYSE:WMT) looks a lot like a life raft.)

And because pure-play grocers were part of the interchange lawsuit while Walmart, Target (NYSE:TGT), Macy's (NYSE:M) and the NRF weren't, grocers and their trade group were the ones at the table hammering out the settlement, even though that settlement will affect all retailers who take payment cards.

That's how we come to have this name-calling sideshow as the settlement slowly grinds toward what, by all indications, now is its ultimate approval by the court. And if there's really anything to be learned from the NRF-EPC flame fest, it's probably that the time and place for retailers to be pounding the table about interchange is before it's too late to make a difference.