Did the Fed Cave on Swipe Fees?

If you are planning to start a small business in the not so distant future, you may not be aware of an expense that could seriously eat in to your profit margin. It’s call the swipe fee and it’s the subject of some recent rulings by the Fed that have some small businesses upset.

21st century businesses know something about credit cards: Consumers use their credit cards for purchases large and small and they use them a lot. Many consumers don’t carry any cash in their wallets because they know that their credit card is faster, more convenient, and by using it they don’t have to carry change or dirty, germ filled cash. They also may be receiving rewards points from their credit card purchases so using their card for even the smallest expenses allows those rewards points to add up. Credit cards are designed to entice consumers to use them for everything but often at the expense of the merchant.

On debit cards, the merchant has traditionally been charged 44 cents every time the card is used. If you’re a future small business owner, you may not see 44 cents as an expense that could severely eat away at your profit margin. You might be right if you only sell high priced goods or services but what if you’re a coffee shop? What if your average sale is $4. This debit card swipe fee was eating away 10% of your profit on that cup of coffee. For some businesses, 10% is their entire margin. What if the debt card is used for an even small expense? A candy bar or a newspaper?

This week, there was good and bad news for small businesses. First, the Fed voted to not delay the implementation of the new swipe fee rules. These rules were to reduce the maximum 44 cent swipe fee down to only 12 cents but the Fed voted to cap the swip fee at 22 cents and enact the new mandate in October. Although the October enactment date is good news, the fact that the fee was capped at nearly twice the amount of the original amount may do little to help the issue of margin compression. Consumers will continue to see that cost passed along to them both from the store and also the bank.

If you’re a future small business owner, remember that the cost of taking credit cards is sizable when you add up the costs over the course of a month or year.