Retailers Are Losing Money on Returned Items

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The following post comes from partner site LowCards.com.

Debit card interchange fees will decrease on Oct. 1 – 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’s 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 on debit cards 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 didn’t 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 aren’t refunded to the retailer when a transaction is reversed. Some processors may even charge a second interchange fee when an item is returned.

“While holding onto this fee sounds like one more way banks and credit card processors are squeezing money from customers and retailers, it’s difficult for the system to run in reverse,” says Bill Hardekopf, CEO of LowCards.com. “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. But many merchants are reluctant to do that because it could anger their customers.

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  • Anonymous

    This is hard to answer. Here are some typical scenarios for return:
    Retailers like Home Depot and Lowes tell you to buy extra supllies you “might need on a project” then tell you to “just return what you don’t use”. This saves runniing back and forth when working on a project.
    Some individuals will buy clothes for a special event such as Easter, then return the items the following Monday, never having any intention of paying for them in the first place..
    You may buy an item at store A and then find the same item for considerably less at store B. So, you buy at store B and return the same item to store A since you already opened the parcel from store A.
    This is a tough dilemma for merchants.