Credit/Debit
Card Fees
Cost Exhibitors Millions
by G. Kendrick Macdowell
NATO General Counsel &
Director of Government Affairs
As more movie patrons purchase their tickets
and concessions with credit and debit cards, in what used
to be a predominantly cash industry, we’ll see the
rapidly uncontrollable cost of credit/debit processing
eat more and more out of the bottom line. Retailers across
the country are beginning to fight back — and NATO
is with them. Here’s what you need to know about
credit and debit fees and the battle to reduce them.
When consumers purchase goods or services
with a credit card, the payment is processed through the
merchant’s
bank and the bank that issued the card to the consumer.
The issuing bank charges the merchant’s bank an interchange
fee to process the transaction. The merchant’s bank
and/or third-party processor may then add fees for acquiring,
processing and settling the transaction, and passes on
both of these fees — collectively known as “discount” — to
the merchant.
Interchange fees are supposed to cover the
technology cost of account processing and the risk taken
by the issuing
banks that the credit will not be prepaid. But technology
costs continue to fall while processing power increases
dramatically. In fact, interchange rates in the United
States are among the highest in the world — and no
conceivable cost justification exists. The member banks
of Visa and MasterCard charge exorbitant interchange fees
because ... they can.
In the United States, “interchange” is the
largest component of fees paid by merchants for card-based
payments. This hidden tax cost retailers $30.6 billion
in 2005 — nearly double what consumers paid in credit
card late fees. The result for your patrons? The average
American household paid approximately $270 in 2005 for
a tax they never even knew existed.
We estimate that American theatre operators
pay $65 million a year in interchange fees. If fee reform
in this country
lowered fees by half, the fee structure would be similar
to that of the United Kingdom or Italy. Therefore, a successful
fee reform campaign in the United States could save the
movie theatre industry more than $30 million per year — and
that assumes the current rate of credit card usage, a rate
we know will continue to rise.
Indeed, one recent survey shows that the
25-and-under crowd, obviously an important demographic
for theatre owners,
are hooked on debit and credit cards — and that a
whopping 70 percent of consumers between 18 and 25 make
purchases under $2 with their cards. This issue is here
to stay—or more precisely to escalate.
If you’re reading this column, and you’re thinking
with a bit of a blush that you’re not sure what you
pay in interchange or how the cost gets calculated, blush
no more. Millions of retailers are in the dark — and
that’s how the card associations designed the system.
Visa and MasterCard withhold their operating rules from
retailers, who must sign agreements that they will comply
without even knowing the rules that govern the agreement.
One card association admitted that these rules were the
size of the New York City phone book.
Moreover, these mammoth rules actually bar
disclosure of the interchange fee to consumers. So the
system keeps everyone
in the dark, and the banks flush with billions upon which
they increasingly rely to drive profitability.
And here’s the kicker: there is no meaningful competition
in the setting of these fees. The only restraint is the
naked ability of retailers (and ultimately consumers) to
keep paying more and more. The interchange fees are collectively
set by MasterCard, Visa and the member banks that issue
their cards, which collude to ensure that the price-gouging
continues.
Now retailers are rising up and saying “enough!” Several
lawsuits have been filed, alleging various antitrust violations.
And NATO is working with a diverse group of retailers known
as the Merchants
Payments Coalition (MPC) to shine the
light on the problem of escalating card costs. MPC’s
collective strength is its numbers — we represent
over 2.7 million retail locations and roughly 60 percent
of all credit/debit volume in the United States.
For the first time, Congress is taking a
close look at the anticompetitive pathologies of interchange
fees. Two
hearings have been held this year – one in the House
of Representatives in February and the other in the Senate
in July. At both hearings, Visa and MasterCard representatives
were grilled on their marketing and promotional practices
and had a very tough time defending the merits of their
fee structure. The MPC also launched an aggressive newspaper
and radio campaign to educate the public and policymakers
on the skyrocketing costs to retailers and consumers and
the hidden and collusive gouging by the banks.
At a time when movie theatres confront multiple
pressures to keep ticket and concession prices stable,
higher fuel
costs, mounting admissions and other taxes at federal,
state and local levels, alarming losses from piracy, potentially
costly transition to digital cinema, and studio pressure
on film rental terms — the escalating cost of interchange
fees cannot be ignored. 
