Retailers Are Losing Money on Returned Items

Photo (cc) by Keoni Cabral

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.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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