Jeff Lenard:
Can you just give us an overview for somebody who’s maybe relatively new to the discussion of swipe fees? What are swipe fees, particularly as they relate to credit cards, and what are we looking to do to address them?

Doug Kantor:
Swipe fees are the fee that the bank that gives a consumer their card, charges the merchant that accepts their card. And the big problem with swipe fees is that Visa and MasterCard set the amount of the swipe fees, but it’s not the fee they charge, it’s the fee all those banks that give consumers cards charge. So they don’t compete on price, and what happens is these fees get higher and higher and higher. Anyone in our industry knows that these fees are way out of control and a huge chunk out of their bottom line. That’s why it’s been one of the top policy issues for the industry for just about the last generation.

Chrissy Blaskinsky:
We’re looking at $14 billion a year for our industry alone.

Doug Kantor:
That’s just convenience stores. It’s 10 times that overall, staggering numbers.

Jeff Lenard:
I like the idea of linking it to a generational type discussion because we were looking at clips before the NACS Show, what are clips that we can use to show how long we have been looking at this issue? We pulled up a clip from the 2001 NACS Show. It is just after 9/11. It was the first trade show in Las Vegas after 9/11, after the attacks. We had a general session where we talked about what are the top issues facing the fuels market, and retailers had a choice of six things. They could choose in instant polling, fixing interchange, which it’s also known as interchange, swipe fees, I think, has been more effective in getting our message out. But fixing interchange, addressing ridiculous interchange rates, was the number one issue, and that was 21 years ago. In those 21 years, we’ve made enormous progress for what it’s worth. We have fixed the debit card system. Are there similarities with what we accomplished, I believe that was 2011, with what we’re looking to do now?

Doug Kantor:
There are some similarities, but there are also some differences. In the Dodd-Frank Bill with the Durbin Amendment, we got some changes in 2010 that were implemented in 2011, as you said. That did two things really. One was, it gave the Federal Reserve the ability to regulate the amount of the swipe fee on debit cards. The second was it said, “You ought to be able to have at least two networks competing on the card.” Not just Visa or just MasterCard, but somebody else like a Star, Pulse, one of these other small networks so that they have to compete a little bit on price and service. The bill we’re looking at now on credit cards is just that second part, the making sure the networks compete a little bit on price and service. Having some competitive market pricing could make a world of difference here. That’s what we’re looking for on credit cards, but not the regulator actually setting the cap on the fees.

Jeff Lenard:
One of the things that Jared Scheeler said, our previous NACS chairman, in his speech in the general session, he said, “No one wanted this fight,” that Congress didn’t want to really jump in here and get into a fight between big banks and Main Street. Yet, we did want this fight and it’s essential that we address this. Chrissy had mentioned the $14 billion a year, $37 million a day. There was a ticker at the NACS Show that shows that it’s 400 and some dollars per second. It is something that we were ready to fight and we know that it’s going to get dirty and nasty because the banks want to protect that 2.2%, 2.25%, whatever they get off of each transaction, and it doesn’t necessarily go for all those things they say it goes for. But anything they can do to stop the idea of fixing the system, they’ll throw out there.

Jeff Lenard:
This is going to be a battle that is won by a combination of telling the story, getting Congress involved, and having everybody just communicate. If you’re a retailer, tell your story, get engaged. Well actually, let’s just go back to the first part of that. We’re talking about Congress. We have a bipartisan bill in not just the Senate, but also the House to address that, which is a big, big deal. And at the NACS Show, we had one of the sponsors for the senate bill at the show, which is a big deal. Do you want to talk about these bills and getting sponsors for these bills? And in a less than bipartisan era, we are able to get bipartisan bills in both houses.

Doug Kantor:
I’ll say a couple things about what you talked about, Jeff. One is, there are many members of Congress, potentially even most members of Congress, who would rather not have to pick between an industry like the banking industry and all of Main Street. The banking industry is big and powerful and there’s lots of financial resources and they’re not hesitant to bring them to bear on this issue of swipe fees because it’s so much revenue to them. That naturally makes a lot of politicians concerned about bringing this up. Roger Marshall is to be commended for being an exception to that. He dived into this and said, “You know what? Main Street is right on this and I’m going to do it.” He was not concerned about those consequences and that’s great. Senator Durbin has been that way for years and we deeply appreciate it. And as you mentioned in the house, Peter Welch, the Democrat from Vermont, Lance Gooden, Republican from Texas, these are very different numbers of Congress, but they were willing to step up and say, “You know what? This is right, I’m going to do it anyway.”

Doug Kantor:
The big issue has always been that the banking industry has all of our members’ money. They’ve got those billions to deploy, to fight anybody trying to change things, and that’s hard to deal with. The great advantage we have always had on this is that there’s a lot more folks who make their living on Main Street than do on Wall Street. And it’s the voices of business owners, managers, everybody in our industry and in other retail industries that collectively is the only way to make a difference because the banks will drop tens of millions fighting against us without even really noticing.

Chrissy Blaskinsky:
Can you back up? Can you explain what Marshall meant when he said that this is an inflation multiplier?

Doug Kantor:
Absolutely. The fee that gets set by Visa, MasterCard is not just an amount, it doesn’t say, “20 cents for every transaction.” It says, “20 cents for every transaction,” or something like that, “plus a percentage of the total transaction amount.” It might be 20 cents plus 2%, just to give a round numbers example. That 2%, the minute there’s a penny of inflation, that 2% means the swipe fee’s higher too. And so, our members or other retailers have to increase their prices to cover their increased cost of goods, and then they get hit with an increased swipe fee because it’s a percentage of the increased price, so they have to increase prices again to make up the swipe fee. And by the way, then they get a higher swipe fee and have to keep doing it. It’s this multiplying effect like a dog chasing its tail that just means more and more and more inflation automatically without necessarily any changes happening to the bank’s costs.

Jeff Lenard:
Which is of course why the Visa CEO and the Visa CFO at different times both essentially said, “Inflation is good for our business,” which I’m sorry, feels pretty tone deaf.

Doug Kantor:
It does feel tone deaf. And frankly, it is the opposite of what happens in our industry where when gas prices go up as they rise, our folks make tighter margins and make less, their costs also get higher at the same time. So inflation is not good for our members’ business, but we know it is for Visa and MasterCard, and that’s a shame.

Jeff Lenard:
A lot of times with our NACS’s in-store program, we have elected leaders come visit stores to learn about business and Senator Marshall was one of the many who have been on in-store and gone to a business to learn more about it. But I’m pretty sure, at least in my 20 some years at NACS, he is the first elected leader to go to the NACS Show. Not just speak but then interact with people, go meet members, go on the show floor. You spent some time with him. What’s that like from his perspective? Were there things that you heard from him that he just said, “I had no idea. I mean, I know you guys on Capitol Hill, but I had no idea seeing all this other stuff at the NACS Show.”

Doug Kantor:
It was great fun. Look, we all take great pride in the NACS Show and we should. It’s pretty amazing to see the space, the variety of products and services, all the creative displays and what that represents for our industry. But it’s easy for us and for folks in our industry to get a little bit used to it, maybe take a little bit of that for granted. Senator Marshall and he had staff there with him too. None of them did. They were amazed. It was so much fun walking around the show with them where they were able to walk around and get a beer and get a hot dog and get some candy and talk to businesses that had big operations in Kansas and say, “Wow, this is really very significant.” The real manifestation of how big this industry is becomes much clearer when you see all of that. And I do think they were blown away. They said this much to us, they seemed to have a great time and we had a great time really seeing it through their eyes.

Chrissy Blaskinsky:
Doug, when you and our GR team were up on Capitol Hill and there’s different members of Congress who were there now than there were 20 years ago, and we started bringing this issue to the Hill. For those who you talk to for the first time and explain to them what swipe fees, or the impact that it has on our industry, what’s their reaction? Are they just blown away by this? I mean, it’s got to sound pretty astronomical to them.

Doug Kantor:
It does. I will say, look, we should keep in mind these are all different people and they all have different reactions. There’s no one reaction, but there are some themes, if you will. One is yes, they are blown away by how big these fees are and what a huge impact they have on the industry. For many of them, because of that, it takes multiple conversations before it really sinks in and they start to say, “Wait.” It’s not that they don’t believe us at first, but they sort of don’t believe us at first because it’s too big. It’d be easier for us if it wasn’t as big of a problem.

Doug Kantor:
But once you get over that initial disbelief, yes, there are huge concerns. And we see that not only in the reaction of folks on Capitol Hill, but in the reactions of people in the general public. We’ve done polling and surveys on this for many years now, and one of the most effective things that we find in polling is just telling people the simple facts of how much money it is, changes people’s minds and they say, “Wow, there’s something wrong with that.” Not many issues where that’s the case, but it is on swipe fees.

Jeff Lenard:
Now, you talked about one of the big differences between our side and the bank side is we, of course, like most people, think inflation is bad for business. The banks feel it’s good for business. Another way we differ is related to prices. Henry Armour, our president and CEO, said something in the general session. His quote was, “If NACS set the prices for retailers in the room the way Visa and MasterCard set them, we would all be in jail. Yet the credit card cartel is allowed to get away with this.” We’re not lawyers, you are. How is this allowed?

Doug Kantor:
Well, first we should be clear. Price fixing is not allowed. That’s the rule number one of the antitrust laws. That’s why we don’t do it, it’s just an example. But the second thing is, why have they been able to get away with it? Well, it really is a curiosity of how the credit card system started because in the 60s and early 70s when they were getting this off the ground, there was a collective action problem, where you had banks all across the country, you had merchants all across the country, and they wanted a card that could be used everywhere and the banks started worrying, “Well, if we do that and somebody with a card from, say, a little bank in Iowa, is in Los Angeles at a restaurant, how do they know the restaurant’s bank has a relationship with the little bank in Iowa?”

Doug Kantor:
And they worried about this hold up problem with the little bank in Iowa say, “Well geez, we’re going to demand hundreds of dollars just to process that one transaction because you’ve never done business with us before.” Well, conveniently for them, they solve that problem by saying, “Well, we’ll just then set the fees for everyone.” And that seems like a very nice solution if you’re a bank and you know that then you’ll be safe and taken care of and you won’t get undercut on your fees or anything like that. But it’s a terrible solution for the rest of us. There are other models they could have adopted that’s been pointed out many times over the years. They could have assumed, well, the amount is zero unless you’ve got a contract that says it’s otherwise, and that’s up to you. Interestingly, in the ATM context, the swipe fees or interchange fees run in the opposite direction.

Doug Kantor:
They go to the ATM owner from the cardholder’s bank and consumers often see those and pay an extra fee when they go to an out of network ATM. So you could have had all kinds of other default rules, but they chose one, not surprisingly, that was most advantageous to them, the banks, when they were setting up the system. And part of the reason it’s survived to this day is that the courts looked at that initially and said, “You know what? This is a brand new kind of crazy experiment to have this national credit card. And so we don’t know. Maybe we should kind of let this thing go and see what happens.” Rather than just saying, “You can’t do that.”

Doug Kantor:
Obviously, we’re past that point. It’s not a brand new crazy invention anymore. Credit cards are pretty well entrenched, but legal cases tend to stick around. And I think there’s one other factor in that consumers don’t really see this every day, so there’s not as much of an outcry as there would be if they were fully aware of it. In fact, our polling shows most people are not aware there are any fees at all. The combination of an unfortunate early experience and court precedent with these fees being invisible means they’re still around and frankly, the legal cases challenging them are still going to this day. We’ll see if any of that turns things on the legal front.

Chrissy Blaskinsky:
So now that you’ve got our audience fired up to the point where their inner, how are bills coming out, where they’re saying, “I’m mad as hell and I’m not going to take this anymore.” What can retailers do? What do want to tell them right now? Here’s what you can do.

Doug Kantor:
What I will tell you is what I’ve told every one of our folks that I’ve been talking to for months now, contact your member of Congress, go meet with them, call them, email them, whatever you can do, send them a message on Twitter. Send them a message on Instagram. Go to Facebook, all the modern and ancient ways that we communicate with people, do that.

Chrissy Blaskinsky:
Call them on the phone.

Doug Kantor:
Even on the phone, you can use a landline, those actually still work.

Chrissy Blaskinsky:
Rotaries.

Doug Kantor:
You can also write a letter to your local paper, letter to the editor, or an op-ed. Get your voice out there. Make sure they’re hearing from you. If everybody in our industry did that, there’s no question we would win. The groundswell would be huge, but everybody’s got to pitch in and do it because like I said, we will never be able to spend as much fighting for credit card reform as the banks can spend fighting against it. So we need all of that sweat equity of making those contacts and getting our voices out there.

Jeff Lenard:
And of course, NACS makes it easy. You can go to convenience.org and go to advocacy and there’s more there. The website also should work, the one that we used at the NACS Show, which was convenience.org/fixswipe. There’s ways to address letters to your elected leaders to have them co-sponsor and support this bill. And there’s a chance that, with something like this, this is a generational fight and there’s a chance that we could move this with the right amount of support from elected leaders, with a right amount of support from everyone in our industry and other industries affected that something could move over the coming weeks or months. Isn’t that the case?

Doug Kantor:
That is the case. We are trying to get this done this year in November or December. This is a good opportunity for us. There’s a chance it won’t come up. The procedures in the Senate are up in the air. They may depend somewhat on election results, but based on that, it could come up. And we think this is a window of time, especially with inflation and other things going on, where it could pass if we get that opportunity to get a vote, and then if we get a vote, we got to make sure we win.

Jeff Lenard:
And we got to make our voice heard. So let’s get this done. That’s a $14 billion problem in our industry every single year. And as prices go up, it will be a bigger problem next year, assuming that there’s more inflation, inflation multipliers, and all that stuff. So make your voice heard. Let’s make a difference on this. It can be done. Thank you, Doug, for joining us today. Did I already say make your voice heard, convenience.org/fixswipe or elsewhere? Tell your story to your elected leaders. Let’s get this done. Thank you all for listening to Convenience Matters.

Outro:
Convenience Matters is brought to you by NACS and produced in partnership with Human Factor. For more information, visit convenience.org.

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