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Monday, June 13, 2011

Credit/Debit Card Swipe Fees

I applaud the Senate for passing legislation to cap credit and debit card swipe fees for businesses at $.12 per swipe; the current average is $.44 per swipe. For small business, I see this as a big win and a potential boost in confidence. Some who are skeptical of the legislation's benefits are focusing too much on how the bill may bring about lower prices; their argument is that the change is much too small for businesses to lower prices a significant amount. In a sense, these critics are correct. However, they are not seeing the bigger picture of how this move may help local economies as well as the United States economy as a whole.

Let's say the typical small business sees an average of ten swipes a day(probably a very conservative estimate) at the current average of $.44 per swipe; this amounts to $1, 478.40 for the entire year, assuming that the ten swipes a day is a constant. By cutting the swipe fees an average of 73%, these businesses would be paying approximately $400 for the year in swipe fees, a net savings of approximately $1,100, using the numbers from the provided example. Bear in mind that this is all under the assumption that every business sees only ten swipes a day. Say we double the number of swipes per business to twenty; the approximate savings per business would then be $2,200. With $2,200 over a couple years, the owners can seek to improve their business in any number of material ways, which may include expansion, renovation, or provide them with the capacity to hire more workers and/or increase pay for those workers, which has a positive effect on the economy considering the crippling affects of inflation combined with a high jobless rate. In addition, these savings can also boost personal spending by these business owners, pumping additional life into the economy.

On the flipside, corporations are also winning in this scenario. Since corporations are chains that are scattered all throughout the country, their profits will experience an astronomical boost and may even kill small business more with its ability to advertise more, provide shoppers with lower prices, and buy up more property to expand their operations. Essentially, they will be experiencing identical positive effects, but on a much larger scale. In spite of this, if corporations see heightened levels of expansion, they will also be helping the economy by creating much-needed jobs for the unemployed.

The ideal legislation would be to reduce both corporate and small business swipe fees, but by different percentages to make the playing field more level. For small businesses, maybe the reduction could be 70%, and for corporations only 20%. This would still allow for economic expansion by creating jobs and potentially increasing wages, but the ability of corporations to expand at a faster and wider rate would be curbed to help small businesses take back a portion of economic output.

Despite my desire for that adjustment in the legislation, I am still a proponent of the bill that was recently passed, and I hope it helps the economy as I've predicted.

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