But an explosion in debit- and credit-card use and a steep rise in transaction fees have turned that nuisance into a major concern of supermarket operators.

"Interchange has gone up 10 times in four years and four times in the past two years," Norman Rich, president and chief executive of Weis Markets, said.

Interchange is the percentage of each transaction that Visa and MasterCard banks collect from retailers every time a customer pays with a credit or debit card.

Visa and MasterCard, which initially offered reluctant supermarkets an interchange rate of 1.26 percent per transaction, currently charge supermarkets around 2 percent.

As a result, Weis' interchange fees rose from $1.3 million in 1995 to a staggering $10.4 million last year.

Weis and Redner's Markets say anti-trust law violations by Visa and MasterCard have helped raise their interchange payments more than 700 percent in 10 years.

"Banks are regulated on the fees they charge; why aren't credit card companies?" Rich asked.

It's a question also being asked by Pennsylvania's senior senator, Arlen Specter. Specter, the Judiciary Committee chairman, recently held a hearing entitled "Credit Card Interchange Fees: Antitrust Concerns?"

The hearing was prompted by more than 50 suits filed by supermarket operators, drugstore chains and others claiming that credit-card companies had violated antitrust laws.

At the hearing, Visa and MasterCard denied scheming to fix the bank rate and argued its charges must be reasonable to withstand competition from other credit-card issuers, such as American Express Co.

However, in 2003, Visa and MasterCard agreed to pay a $3 billion settlement to resolve a dispute by retailers, including Wal-Mart, who sued to collect overcharges related to signature-debit transactions dating back to 1996.

Considering supermarkets are lucky to realize a 3 percent profit margin, paying those fees seems like the equivalent of having Tony Soprano as a business partner.

Eric B. White, Redner's spokesman, said Redner's interchange fees for its 20 stores in 1995 was $500,000. Last year, that expense rose to $4.2 million for 40 stores.

"Our hope is that the Senate hearing sheds light on credit-card companies and their anti-competitive fee-setting practices and forces Visa and MasterCard to explain their fees better," White said.

In a typical $100 credit purchase, about $98 goes to the retailer. Roughly $1.75 of the remaining $2 goes to the bank that issued the credit card, and 25 cents goes to the retailer's bank.

In addition, Visa or MasterCard bills the merchant each month for processing transactions. Every retailer and type of transaction has its own agreement.

Total credit- and debit-card interchange collected by Visa and MasterCard amounted to $26.3 billion in 2004, according to the Nilson Report, a newsletter that covers the credit-card industry. The figure is up 58 percent from $16.6 billion in 2001.

Those testifying on behalf of the credit-card industry at the Senate hearing refrained from open discussion on how interchange is computed and instead focused on free-market issues.

Timothy Muris, an antitrust lawyer representing Visa, testified the Visa network lowers prices, raises output and leads to innovation and said the rate-setting policy is fundamental to the network's operation.

"The end of interchange will lead to chaos," Muris said. "The merchants understand this. They don't want an end to interchange. Instead they want lower interchange rates through price controls."

Nonretail businesses are not immune to high credit-card fees. Pete Kearse of the Kearse Restaurant Group, which includes Gibraltar and Doc Holliday's Steakhouse, said his transaction fees have gone up close to 50 percent in two years despite relatively flat sales.

Kearse said the eight-restaurant group pays a 1.5 percent interchange fee that totals about $235,000 in credit and debit transaction fees. He maintains collusion exists in the credit-card industry, pointing out that interchange rates overseas are below 1 percent.

"We pay more fees than anywhere else in the world, yet we have the most efficient (transmission) system," Kearse said. "Our (interchange) fees should be the lowest in the world."

Retailers argue interchange fees should be falling as debit- and credit-card use has exploded during the past decade. But just the opposite happened.

Redner's in 1995 averaged 308,000 electronic transactions per month. That grew to 2 million in 2005.

Gibraltar reported that almost 90 percent of its customers now pay with plastic, and Weis said half its payment transactions are electronic.

Though they deny they exploit their market position, Visa and MasterCard force retailers into non-negotiable contracts that forbid them from disclosing those fees on cash register receipts, Rich and White said.

Redner's says interchange fees force it to raise each product an average of about 4 cents a year to offset credit transaction fees.

"We want the consumer to be made aware of what the (fees) are and what they account for in their purchases and how it affects the cost of products for the retailer who are incurring these fees," White said.

Rich said Weis' interchange fees are becoming almost as burdensome as the utility bills it pays to operate its 158 stores, which range from 40,000 to 65,000 square feet.

Still, Rich said Weis' $10.4 million annual interchange fees have not yet forced the cancellation of a scheduled capital expenditure.

"You can't let it interfere with business decisions," Rich said. "The decision about interchange is more likely to affect the customer who must pay higher prices because of it. They might have to decide whether to buy sirloin steak or ground beef for their kids."

Contact Pat Burns at pburns@lnpnews.com. blog comments powered by Disqus