Imagine sitting around a table of credit unions and small businesses and the intended topic is swipe fee regulation. You’d expect it to play out like any other varied stakeholder engagement on the issue, where each side staunchly defends their talking points and polarized positions. If you’ve been around payments for a while you may think back to some lively and performative engagements with vociferous leaders like Mike Cook from Walmart on the topic of debit interchange[1].
But what if after attending the round table event you walked away realizing that we—credit union card issuers and small business merchants—have more in common on the issue of swipe fees than you initially thought? That was my recent experience after attending a Credit Union of Association of New Mexico roundtable with New Mexico Credit Unions and local, small business merchants. In states like New Mexico that is home for 172,133 small businesses that also represent 99% of all firms in the state[2], this is a meaningful outcome on a topic that has very much been positioned as us-versus-them.
We found common ground on at least two positions on the issue of swipe fee regulation, and uncovered a meaningful gap, that if addressed could serve small business merchants better than the proposed swipe fee bills written today.
Common ground: Fraud is a shared experience
Together we learned that fraud is a shared experience across credit unions and small business merchants. A local business talked about how they had to manually remove thousands of customer records from their CRM system—bad customer records negatively impact their sales pipeline and ability to forecast business performance, and when tied to fraudulent payment credentials can be a source of chargebacks. New Mexico Credit Unions were able to tie that back to the fraud we experience as an issuer of cards, highlighting that smaller dollar fraud stemming from those bad customer records when used for testing by fraudsters are write offs—never seen by small business merchants as chargebacks.
This realization—that the fraud we were both talking about is the same fraud issue—helped everyone understand more holistically the role interchange plays in covering the cost of card fraud.
Common ground: Largest merchants lobby and benefit from swipe fee regulation
More small business merchants are realizing the efforts of the merchant lobby are designed by and for the benefit of the largest merchants. Small business owners start their business because of a passion for something—and that generally isn’t payments! I was impressed with how knowledgeable small business merchants are becoming on how interchange works, who gets a seat at the table to negotiate their own rates with Visa and Mastercard, and their acknowledgement that no one person is at that table negotiating interchange rates on behalf of their small business.
There’s an awakening to the fact that like credit unions, small business merchants are impacted by the unintended consequences of card swipe regulation because the regulation isn’t being written for them and by them. Both credit unions and the small businesses talked about how those unintended impacts showed up through the now infamous Durbin Amendment targeting debit interchange, and how scale matters when you have to operationalize the fallout of regulation not written by or for smaller scale merchants.
Closing the gap for small business merchants—transparency and third party pricing
It was interesting to hear small business merchants talk about how card processing works for them at their scale, with many selecting processing partners like Shopify or Square that aim to simplify the complexities of interchange down to a “flat rate + fee” structure for small businesses. This business model was born from the complexity of interchange and payment network rules, with rates differing based on the card type presented, who the issuer of the card is, who the network is on the front of the card, and what type of merchant you are. Small businesses now want to see who the man is behind the curtain of their “flat rate + fee” processing fee structures, and they want more transparency. They know there are broad changes taking place to network interchange rates and transaction pricing, and in some cases, rates are reducing. They are concerned that those reductions aren’t being passed along to them as the small business merchant and any financial windfall is benefiting their third party processor’s bottom line.
Working together to stop history repeating itself
I believe there is a real opportunity for credit unions and small business merchants to work together and prevent—or at least influence—better outcomes of any ‘swipe fee’ regulation. Both parties have stories highlighting the unintended consequences of past regulations such as the Durbin Amendment and know enough from experience to see history repeating itself. Scale matters and informs whose voice is the loudest. Perhaps the real question we should ask ourselves is how we can show up together as allies—credit unions and small business merchants speaking with one voice.
[1] https://infinicept.com/payment-facilitator/archive/walmarts-visa-pin-lawsuit-puts-a-we-want-security-face-on-a-we-want-more-money-argument/
[2] https://boostsuite.com/small-business-statistics/new-mexico/
