WILSHIRE BLVD. — Shopping for new shoes or groceries for tonight’s dinner? What about a birthday gift for a friend? It’s easy — just pull out the plastic.
But what shoppers might not realize is that every time they swipe that credit or debit card, the merchant is actually incurring a fee.
Franchisees of local 7-Elevens are speaking out against these fees — known in the business as interchange fees — in a nationwide campaign to collect one million signatures to send to lawmakers in Washington D.C.
A Santa Monica 7-Eleven on Wilshire Boulevard has collected more than 240 signatures since the campaign began two weeks ago. The goal is to gain more control over how the interchange fees are set.
“It’s really unjust. It’s not fair,” said Tim Domeno, the franchisee of the 7-Eleven on Wilshire.
More than 6,300 stores across the country are participating in the campaign, which has gathered nearly 16,000 signatures, to combat what they are calling unfair credit card fees.
These fees are a small percentage of the price of a sale that a merchant pays its bank when a customer uses a credit or debit card. An interchange fee is then paid by the merchant’s bank to the cardholder’s bank.
Franchisees are saying that credit card companies do not negotiate these fees with merchants, which can cut an average of $28,000 from a 7-Eleven store’s revenue annually. Domeno, who said 40 percent of his revenue comes from credit card sales, estimates his loss will be even greater.
“7-Eleven, we’re a small convenience store. The average transaction is $5,” Domeno said. “When you start taking a credit card fee, that’s a lot of the percentage of profit you make on that transaction.”
Relating it to a can of soda, he explained that once credit card fees were removed from the sale, his profit would come to around 14 cents.
“On that 14 cents I have to order it, stock it and keep it cold. It doesn’t even cover my overhead to get it on the shelf and chill it,” he said.
Interchange fees cost a store on average 2 to 2.3 percent per sale, but the amount varies based on the volume of credit card sales and dollars spent at each store. Of that fee, a small sum covers costs that the merchant’s bank incurs to make credit card processing available, and the remainder is given back to the cardholder’s bank to cover the risks and costs of maintaining the account.
Peter Garuccio, a representative from the American Bankers Association, said these fees are negotiated between banks based on rules that VISA and MasterCard have put in place.
“The fee is set by the market forces at work. There are some 16,000 banks that issue credit cards in the U.S. and they all compete for the same wallets,” he said. “The market will set the price.”
But Domeno said he’d like banks and credit card companies to keep small franchises in mind when they are setting their fees.
“7-Eleven is a big company but I’m not. I’m just a small-business man,” he said. “All I’m trying to do is hire employees, make a living and live in the community.”
Domeno’s store isn’t the only one affected by these fees, but many Santa Monica merchants say they are just a part of running a business.
“Well yeah, it’s a big cost,” said Jill Cloud, owner of Clouds on Main Street. “You just have to incorporate the cost of everything when you’re doing your pricing.”
Marilyn Lawrence, owner of Mom’s the Word on Montana Avenue, said she would never consider raising prices based on credit card fees but instead asks customers not to use cards for purchases under $20 and to avoid cards, such as American Express or Discover, with higher rates.
Third Street Promenade shopper Julia Wang said minimum fees don’t bother her because she tries to avoid using plastic.
“I generally just try to use cash,” she said.
Domeno said that at 7-Eleven, customers are directly affected by interchange fees and indirectly end up paying for them through the markup of goods.
“We need to let the people know what’s happening. They’re paying this fee. It’s getting passed along to them,” he said.
Wang hadn’t heard of transaction fees before and was surprised to learn that customers often end up paying the brunt of the cost.
“It’d be unfair for people that don’t use credit cards to incur that charge,” she said.
Chris Mauch, a visitor from New York, explained that the convenience of a debit card is why he often avoids paying cash, but he doesn’t want to be charged more for that choice.
“I usually don’t like getting charged extra fees,” he said.
Garuccio, however, said the fees are a small price to pay for the advantages that both merchants and customers receive in exchange.
“The thing that really gets lost in this debate is the enormous benefit that merchants and customers get from the use of cards,” he said.
“The bottom line is, the bank that gave you that card guarantees that the merchant will be paid for the product you bought. The risks are very high that you will never pay your bill and that’s what the interchange fee goes to cover.”