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The Honolulu Advertiser
Posted on: Wednesday, September 29, 2004

Fees passed on from credit-debit cards

By Jeanne Ridgeway
(Cherry Hill, N.J.) Courier-Post

Many shoppers don't realize it, but their use of convenient credit-debit cards might be ramping up the prices on products that all consumers buy.

Catherine Dietrich, right, of Audubon, N.J., uses her debit card to pay for groceries at the Shop Rite in Brooklawn, N.J. The increasing fees that stores must pay for debit and credit card transactions are driving up the cost of products, especially for food retailers.

Al Schell • Gannett News Service

By accepting a customer's plastic cards, merchants pay electronic transaction fees imposed by credit-debit card associations. Now some retailers are considering ways to recoup their increased operating costs, including boosting prices on their merchandise.

The retail food industry is especially feeling the pinch.

"When you're talking about a 1 percent profit margin, there is no room for that to be absorbed. So you're talking about costs being passed on to the consumer," said Jennifer Hatcher of the Food Marketing Institute of Washington, D.C., a trade organization representing 26,000 food retailers.

Electronic transaction fees charged to all retailers have increased 11 times in the past year, and debit fees are up a whopping 267 percent since 1999, according to the institute.

The trade group wants Congress to investigate fee increases and the lack of legal controls over them. Other countries, including Britain and Australia, have taken measures to control the cost of escalating electronic payment fees, the trade group says.

In 2003, card associations collected $29.2 billion from electronic transaction fees.

"I had no idea," said Catherine Dietrich, 38, of Audubon, N.J., when told about the fees retailers pay. "I thought using a debit card was the way to go because the money is there" in the bank.

The mother of three recently used her bank card when making a $254 grocery store purchase. Dietrich's method of payment is common. In 2003, more than half of all PIN-based debit transactions and 59 percent of all signature-based debit transactions were handled by food retailers, according to the TowerGroup, a research organization.

At Visa USA, only about 10 percent of the company's total volume is transacted in grocery stores, said Bruce McElhinney, senior vice president of the card company's merchant group.

Fees that VISA charges for electronic transactions "have been flat across the product base for about four years," according to McElhinney, although fee rates charged by other card associations may be higher, he said.

"Consumers like the convenience of using the cards, and it provides benefits for the merchant in terms of efficiency at the checkout and guaranteed payment," he said.

Electronic fees are part of the cost of doing business, but even cash transactions cost retailers money, McElhinney pointed out.

"You've got to have someone, usually two people, count the money. And then there are charges for armored car services," he said.

Jeffrey Brown, owner of six regional ShopRite grocery stores, said his company has been feeling the squeeze of electronic transaction fees for about five years.

"It has added a cost of $50,000 a year per store," said Brown.

Consumer use of electronic credit-debit payments increased 500 percent between 1989 and 2000, and continues to grow. Meanwhile merchants are paying increasingly higher electronic transaction fees when their customers use credit-debit cards.

"The customers are doing what is convenient for them, and I want the customer to have a good, convenient experience," Brown said, "but it's the (credit-debit) vendors that keep raising their prices, and that's where the problem is."