Food Marketing Institute Responds to Swipe Fee Reform and the Role of Customer Service Oct 6, 2011 Q: From a retailer perspective, what do you think of the recent actions of the big banks, like Bank of America’s $5 fee? How will the banking industry’s competition translate to the grocery aisles?A: Of course, any business deserves to make a profit, as Bank of America’s Mr. Moynihan said today, but not using disguised tactics. Banks dislike the fact that Congress has stepped in to correct this price-fixing duopoly – and now they are trying to immunize themselves from accountability by claiming poverty—but aggressive talking points and finger pointing won’t make swipe fees seem any more legitimate.Retailers believe in free markets: Markets that are transparent with strong competition. And in this economy, transparency wins. We’re seeing this with the banking industry, as consumers, disenchanted with the fees at their current bank, can take their money somewhere else. So, too, with the supermarket industry, as it’s in our best interest to keep our customers happy and coming back. We are in the business of customer service – and the big banks should be, too. If one of our stores raised prices on milk, just as Bank of America did with its checking accounts, that store would risk losing business to its competitors.Q: What’s the economic impact of the Durbin Amendment for food retail business?A: Supermarkets have one of the lowest margin industries in the U.S. When food retailers see escalations with swipe fees, the impact is intense. While we anticipate our members to try discounting for debit at some stores, this is a competitive industry, so we will only see change over time. The reforms that went into effect on Oct. 1 are the catalyst for a new wave of competition.Though the Federal Reserve found that the average debit transaction costs only 4 cents to process, the new law means many merchants will be seeing lower swipe fee bills and consumers will start to see opportunities for discounts at the cash register. The unfortunate part of the Federal Reserve’s rule is that it actually led the networks to increase costs on certain transactions at some grocery stores so it is unclear how great these benefits will be to us and our customers.Q: What does this mean for credit cards?A: U.S. consumers and businesses pay the highest credit card swipe fees in the industrialized world.Because credit card swipe fees remain excessive at rates more than 2?to?3 percent per swipe for some merchants, numerous retailers are exploring how they can effectively use incentives to encourage their customers to use payment methods that reduce merchant costs. It’s our best interest to incentivize consumers to use their debit card, but that said, we’re not going to inconvenience our customers in our check-out lanes.Q: Why do you think this debate has become so political in the press?A: Mr. Durbin’s amendment is one of the most bipartisan votes on financial regulatory reform. Let’s remember the reform’s original intent: The amendment limited the amount of money big banks could charge retailers for “swipe fees” every time they processed a debit-card transaction. Before Mr. Durbin's amendment took effect on Saturday, big banks were charging about 44 cents per swipe, more than 1,000 percent what the Fed has estimated it costs to process such transactions.Unfortunately, the argument is turning political. Several banks made numerous poor business decisions over the past few years, as evidenced by their decisions to invest in subprime loans. This isn’t about Congress’ role, and consumers should not be penalized. Q: What’s happening to customer service?A: Food retailers are in the business of customer service – and the big banks should be, too. Supermarkets are concerned about giving the customer the most positive experience in the check-out lane. The average consumer visits the supermarket 1.75 times per week, so we have that much more of a responsibility among merchants to be transparent with our shoppers. We’re confident food retailers will tirelessly educate their customers about hidden debit fees. Hidden fees are bad for consumers, and bad for competition.Liz Garner is the director of government affairs at the Food Marketing Institute, representing 1,500 food retailer and wholesaler companies. For an interview, please contact Caroline Evertz at 202-220-0638.