What Does the New Interchange Legislation Mean For You?

A growing number of states have recently introduced legislation to prohibit charging interchange fees on the sales and excise tax portion of retail transactions. Thus far, there are active bills in the states of Georgia, Florida, Idaho, North Dakota, and Texas, however that number is expected to grow in the near-term future. In this article, the CAPRAplus team will examine the potential impact of the proposed legislation from both the merchant and supplier perspective, including how your organization should best start preparing.

How Did This Legislation Arise?

With roughly one-third of all purchases in the US made via credit card, the fees charged by card networks constitute a significant portion of operating costs for merchants. Currently, the common practice is for card networks to charge interchange (or “swipe fees”) on the total transaction amount, inclusive of state and local sales tax. This means, in effect, that merchants are obligated to function as tax collectors for the government and get to pay 2%-3% to the card networks for that privilege.  In most merchant environments, however, the merchant incorporates these operating costs back into the costs of goods and services, effectively passing these costs to consumers.

The idea represented in this proposed legislation is not new. Legislators have previously attempted various forms of this bill, with the earliest example identified in Oklahoma’s 2007 legislative session. Though this is not a new practice, the associated increase in consumer costs is especially impactful to a brand’s ability to engage consumers in an inflationary economy.

What Does This Mean for the Merchant and the Acquirer?

“As with any legislative propositions, this idea has both detractors and supporters,” adds Nick Streams, Senior Consultant with W. Capra. “Supporters of the legislation argue it will not only save retailers money, but that passing legislation is also the ethical position to take, as sales tax collection should not represent a profit to credit card networks.”

While the legislation has support from notable retailers and from state and local governments that are looking for ways to reduce costs, it will certainly face opposition from the credit card networks and their issuers, who will lose revenue if these bills were to pass. Streams continues, “While the underlying fundamentals of this legislation would save merchants on their cost of acceptance fees, opponents point out the significant costs to overhaul existing payments systems.”

What Should You Do Next?

For now, it’s essential to remain aware of how this proposed legislation evolves across the states in which you conduct business. At this time, responsibility for implementation of any approved legislation has yet to be fully apportioned, but there remains hope that this legislation will not require state-specific implementations. Jim DuBoyce, Managing Director of Payments for W. Capra, advises, “As these bills evolve, merchants will need to be aware of concerns that are specific to their environment to ensure that they can capture the significant savings on interchange that this legislation represents. While there’s strong infrastructure in place to support this legislation, it undoubtedly represents a change to both merchant and acquiring environments, and this change will require all parties to take action.”

Jim DuBoyce and Nick Streams are passionate about helping W. Capra’s clients optimize their bottom line and payment operations. For further discussion, or to receive regular updates regarding the progress of this legislation, please contact Jim at [email protected] and Nick at [email protected].

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