Cumby’s spends $48 million a year on debit-card swipe feesJune 9th, 2011 at 10:46 am by Ted Nesi under Nesi's Notes
U.S. Sen. Jack Reed and his Banking Committee allies beat back an effort Wednesday to delay the start of new limits on debit-card swipe fees charged by Visa and Mastercard. The Fed is set to cap the fees at 12 cents a transaction – instead of the current average of 1.14% of the purchase price – starting July 21.
Reed spoke on the Senate floor ahead of the vote and used Cumberland Farms to make his case, offering some striking statistics:
Now interchange fees for Cumberland Farms are their second-largest expense. It’s not the milk, not the gasoline, it’s not a lot of things. … Despite the fact that the total number of gallons of gasoline that they sold has remained flat, the interchange fees have increased 237% from $13 million in 2003 to a projected $48 million this year. …
When gasoline was $2 per gallon, interchange fees were about 3 cents per gallon. Now that gas prices are about $4 per gallon, interchange fees have increased to 5 cents per gallon. So, for the same 15 gallon fill-up, the hidden fees increased 63%.
So the motorists, the local Rhode Islander filling up at the local corner gas station is paying 63% in their fees on top of increase in the price of gasoline. The actual debit card services haven’t changed. But because the price of gas increased, the fees almost doubled. …
The convenience store industry reports overall it pays more in these fees than it’s earning in profits. That’s overall across the board, across the country.
I’d assume part of the reason the cost of interchange fees rose 237% for Cumby’s is because more people are using debit cards now compared with eight years ago. But $48 million is a lot of money, and likely far more than Visa and Mastercard need to extract from Cumberland Farms to cover the marginal cost of running and maintaining their transaction networks – a classic example of economic rent.