Why credit card fees must be slashed

Walmart's (NYSE: WMT) recent lawsuit against Visa for $5 billion, accusing the credit and debit card network of excessively high card swipe fees, is just the latest example of an extremely flawed system that is unfair to retailers and shoppers.

Walmart filed the suit last week, alleging that Visa conspired with banks to illegally inflate fees that retailers pay on card transactions, and that the fees cost U.S. retailers and shoppers more than $350 billion between 2004 and November 2012.

"The anticompetitive conduct of Visa and the banks forced Walmart to raise retail prices paid by its customers and/or reduce retail services provided to its customers as a means of offsetting some of the artificially inflated interchange fees," Walmart said in court documents, reports Reuters.

Walmart's action comes several months after it opted out of a settlement between 19 retailers and Visa and MasterCard. In December, a federal judge in New York approved a $5.7 billion class action settlement between the retailers and Visa and MasterCard despite the objections of thousands of merchants that complained it was inadequate.

We agree that the settlement did not go far enough in alleviating retailers' concerns about unfair swipe fees, as did the National Retail Federation. The organization appealed the settlement in January with the support of several retail organizations.

High credit and debit card fees are making it difficult for retailers both large and small to make a profit. In fact, many have had to pass the fees on to shoppers, as Walmart noted in the Visa lawsuit documents. Of course, this dampens overall U.S. consumer spending, which cannot afford to take any more hits.

Instead, banks must reduce card fees in order to spur the U.S. economy. Just look at what happened in Denver, Colo. In January and February, the City of Denver waived the standard 2.5 percent swipe fee on credit and debit cards for property and excise taxes. As a result of this innovative experiment, receipts for property taxes paid online with credit cards increased from $892,000 to $17.6 million — or 20 times higher than before. At the counter, card payments for property taxes increased by 18 percent, to $37.1 million.

"What we've learned is that any convenience fee turns people off," David Edinger, the city's chief performance officer, told The Denver Post.

If the City of Denver can increase credit card payments so drastically, just think what would happen if banks lessened credit card fees for retailers. The resulting increase in credit card payments and overall purchases would be staggering.

For more:
-See this Reuters article
-See this Washington Post article
-See this NACS Online article

Related articles:
Walmart sues Visa for $5B in credit card swipe fees
Judge hears final complaints over interchange settlement
Interchange settlement economist: It's a good deal except for letting Visa and MasterCard off the hook
Retailers may be able to play card networks off each other after debit cap ruling
Retailer debit fees must come down, judge says