A brief math exercise: Will swipe fee reform save you money at the pump?

Look at Visa’s debit-interchange rate sheet here.  Check out the chart at the top of page 2, row 10.   You’ll see the interchange charged to your corner gas station if you use your Visa Check Card to fill up on a tank of gasoline.  That rate is .75% of the transaction + 17 cents, capped at a total of 95 cents.

At \$3.09 gallon, your local merchant pays the bank that issued your debit card 19 cents for that gallon.  If you fill up with 15 gallons, totaling \$46.35, that transaction costs the merchant 52 cents.  This drives merchants crazy because the real costs to the issuing bank of the two transactions are identical. Why does your bank charge the merchant more for the larger transaction?  Because it can, at least that can until this summer when debit swipe reforms go into effect.

The Federal Reserve has proposed capping debit swipe fees at 12 cents, the number that the agency found to be “reasonable and proportionate” to the costs associated with processing such transactions.  That means that when the rule goes into effect during this summer’s travel season, a full tank of gas purchased with your debit card will cost your corner convenience store less.

Because of the intense competition in the gasoline market, that savings will pass through to you.  Gasoline is a commodity, and your corner convenience store wants nothing more than to attract as many customers as it can.  How does it do that? By offering prices lower than its competitors.

Swipe fee reform will be a win for everyone, consumers, merchants and even banks, who will continue to make plenty of money from these transactions.

Look who’s on the Chain Store Age Retail Power 10 list

This month’s issue of Chain Store Age includes a great story about the retail industry’s top CEOs.  I encourage you to give it a read.  The article identifies what it calls “The Retail Power 10.”  On the list are CEO’s from many of America’s largest retailers, many of which are past or present members of RILA’s Board of Directors, including Walmart’s Mike Duke, Target’s Greg Steinhafel, Best Buy’s Brian Dunn, J.C. Penney’s Mike Ullman, Walgreen’s Greg Wasson, Dollar General’s Rick Dreiling, and The Home Depot’s Frank Blake.

Chain Store Age describes these executives as “determined and ambitious,” and that they “continually look beyond the day to day to see a much larger picture.  It’s that vision that helps them – and their companies – succeed in today’s fast-changing world.”

I couldn’t agree more.  The insight they provide RILA has been critical to our success.  They are all tremendous leaders.

DOT’s Proposed Rule on Hours of Service Hurts an Economy Emerging from a Recession

The Department of Transportation Federal Motor Carrier Safety Administration (FMCSA) recently released a proposed rule on Hours of Service requirements for commercial truck drivers. In essence, the proposed rule will result in a reduction in maximum driving time and a reduction in maximum working time, along with other new requirements.

RILA, along with other organizations from the trucking industry, manufacturing and distribution sectors, the agriculture industry and general business interests, have been actively engaged in educating those involved with the proposed rulemaking about the potential negative effects of the anticipated requirements. Part of that effort was a joint letter sent to the House Transportation and Infrastructure Committee – Subcommittee on Highways and Transit expressing these concerns and requesting a hearing on the impacts of the proposed rule before the close of the comment period later this month.

The retail industry is committed to safety in all aspects of the business. However, with minimal and questionable benefits found in the agency’s own analysis, the general consensus of the business community is “don’t fix what isn’t broken.” The proposed rule would have a definite negative effect on a fragile economy only beginning to emerge from our recent recession. Couple this with the fact that the trucking industry’s safety performance has improved significantly even while adding almost 10 billion miles of track mileage on our roadways, it is difficult to understand how the proposed changes will benefit our nation.

This issue is developing, so stay tuned for more information. FMCSA has announced that they are holding a listening session on hours-of-service requirement on Thursday, February 17, from 9:00 a.m. to 5:00 p.m. ET, available via live webcast, too.

Please see the following resources for a full summary of the changes, a table comparing current rules to the proposed change, and an ATA white paper on potential impact on shippers.

Do Retailers “Get” Social Marketing?

What retailers are taking the greatest advantage of social media by leveraging their online branded communities? Sears and Whole Foods scored the highest marks in the retail sector in ComBlu’s second annual “The State of Online Branded Communities” study.

Our research examined 241 online communities for 78 major corporations, including 23 communities for nine retail brands. Our purpose was to closely examine and quantify the effectiveness of these communities in 1) providing meaningful customer experiences; 2) integrating brand strategies across multiple social media channels; and 3) applying best practices to strengthen customer engagement.

For the second consecutive year, Sears was among the top five overall performers in the study with its MySears Community. ComBlu judges praised the community for “doing a great job of aggregating content and driving a highly customized social shopping experience,” noting such useful features as:

• Reviews from across the Web are aggregated at the online point of sale for the specific item being researched.
• A traveling navigation bar allows consumers to bookmark potential purchases, aggregate content and submit reviews.

New to the ComBlu study in 2010, Whole Foods almost made the top ten by delivering a rich and satisfying engagement experience. They make it easy and appealing for consumers to become interested in different kinds of organic foods, learn about healthy meals and share recipes and ideas for healthy living.

Other retail communities in the study did not perform nearly as well as Sears and Whole Foods. In fact, activity levels of community participants dropped across the sector, and the industry as a whole was one of the few to score lower this year than last.

Recommendation: Retailers should adopt emerging industry best practices, especially aggregating product reviews, research information and peer-to-peer conversations at the point of sale to assist customers when they’re making purchase decisions.

For more information on the retail sector findings, see pages 32, 33, 47 and 48 of “The State of Online Branded Communities.”

Bank Debunker: Calling out claims that swipe-fee reform was passed without real debate

In recent news stories, the banks have suggested that debit-interchange reform was passed without debate, hearings, or any other sort of serious consideration.  Of course, the record shows otherwise. Seven congressional hearings focused specifically on interchange fees for credit and debit:

• House Committee on Energy and Commerce, Subcommittee on Commerce, Trade and Consumer Protection, February 15, 2006
• Senate Judiciary Committee, July 19, 2006
• House Judiciary Committee Antitrust Task Force, July 19, 2007
• House Judiciary Committee Antitrust Task Force, May 15, 2008
• House Financial Services Committee, October 8, 2009
• House Judiciary Committee, April 28, 2010
• Senate Appropriations Committee, Subcommittee on Financial Services and General Government, June 16, 2010

The issues figure prominently in at least four other congressional hearings that did not focus on interchange exclusively:

• House Energy and Commerce, September 7, 2005 (hearing on gas prices following hurricane Katrina)
• House Judiciary Committee Antitrust Task Force, May 7, 2008 (hearing on retail gas prices)
• House Judiciary Committee Subcommittee on Commercial and Administrative Law, April 2, 2009 (hearing on credit cards and bankruptcy)
• Senate Banking Committee, February 12, 2009 (hearing on strengthening credit card protections)

Tiny restaurant offers tasty morsel of what consumers might hope for

Within this restaurant review on WashingtonPost.com is a tasty little morsel.  The next time you’re in the mood for Asian fusion noodles in downtown DC, check out the 55-seat Noodles on 11.  Not only can you get bowls of robust Thai, Chines and Vietnamese flavors, but you can save a little money.  Customers who pay cash get a 5% discount. That’s the amount the owner says he’d otherwise be giving to credit card companies “for the pleasure of using their services.”

(photo compliments of James M. Thresher for The Washington Post)

Despite glimpses like this into the pain small-margin small businesses feel because of swipe fees run amuck, the banks would have us feel sorry for them because the Fed is about to rein in their monopolistic debit-interchange system.

Another small merchant joins the chorus on broken debit interchange system

It’s great to see small merchants, the lifeblood of local economies, getting vocal about their support of the Federal Reserve’s proposed correction of the broken debit interchange system.  Check out this letter today in the Cleveland Plain Dealer from a small, single-store grocer near the shores of Lake Erie.  He explains that swipe fees are taking more than 8% of his gross profits – money that could better be used, in his words, “to grow my business and serve my customers.”  He says it’s time for the government to level the playing field for small merchants like him and stop the anticompetitive practices of credit card companies and big banks.   Congress passed the Durbin Amendment because of authentic voices like this coming from the nation’s small-business community.