Retailers Lose Money on Returned Items Due to Interchange Fees

Debit card interchange fees will decrease on October 1, 2011. This is good news for merchants who have long complained that the interchange fee, also known as a swipe fee, was too high and cut into their profits. The new regulations are helpful, but the interchange fee will continue to be a complicated and costly issue between retailers, banks and credit card processors.

Consumers give little thought to the interchange fee that is charged every time they swipe their debit or credit card, but the fee can take a large bite out of a retailer’s profit. Currently, the interchange fee averages 44 cents per transaction but the reduced fee will be 21 cents plus an additional amount to cover losses from fraud.

This will save retailers a lot of money, but the new ruling did not address what happens to the interchange fee if the purchase is returned. Even though the merchant refunds the full purchase price to the consumer when an item is returned, the retailer may take a loss on the transaction because credit card processing charges are not refunded to the retailer when a transaction is reversed. Some processors may even charge a second interchange fee when an item is returned (MerchantCouncil.org).

Returns and chargebacks are costly and a retailer with a high percentage of chargebacks can pay a higher fee.

While holding on to this fee sounds like one more way banks and credit card processors are squeezing money from customers and retailers, it is difficult for the system to run in reverse. It would be hard to create a system that accurately and quickly refunds credit card processing fees.

The easiest way for merchants to recover this fee is to charge customers a return or restocking fee. However, many merchants are reluctant to charge this restocking fee because it could stir anger in their customers.


This entry was posted in Credit Card News by Lynn Oldshue. Bookmark the permalink.
The information contained within this article was accurate as of August 31, 2011. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website.
Editorial Disclosure
LowCards.com is an independent, for-profit web site. LowCards.com participates in the Affiliate Network, and receives compensation from most of the credit card issuers whose offers appear on the site. This compensation helps support our website and enables us to write insightful articles to help you manage your credit card accounts. This compensation, as well as the likelihood of applicants’ credit approval and our own proprietary website guidelines, may impact how and where the cards appear on our site.

LowCards.com does not include all credit card companies or every available credit card offer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. Every reasonable effort has been made to maintain accurate information, however credit card offers change frequently. After you click on an offer you will be directed to the credit card issuer’s secure web site where you can review the terms and conditions for your offer.

About Lynn Oldshue

Lynn Oldshue has written personal finance stories for LowCards.com for twelve years. She majored in public relations at Mississippi State University.