The $48 Billion Dollar Elephant In The Room: The Swipe Fee.

A hot topic from friends and clients at Dwolla is the question, “Do you accept credit cards?”

The answer is no. Here is why:

Every credit card in your wallet, regardless of the logo, has a fee attached to it. When a merchant receives money, they must deal with 2 costs:

Cost 1 – Percentage fee. This is a percentage based fee, typically 2-5% per transaction.
Cost 2 – Transaction fee. This is a set fee, typically 30-50 cents per transaction.

This problem comes with the associated label, interchange fee, or swipe fee. It’s a $48 billion dollar problem for  businesses.

A business has to absorb the cost, forcing it’s clients to pay for it.

These fees are created by all the parties involved. What parties are involved in a CC transaction?

An example of some of the people included in a basic credit card transaction is the cardholder, a card-issuing bank, the merchant, an acquiring bank, an independent sales organization, a merchant account, a credit card association, and the transaction network.

Each one of these entities adds to the cost of the transaction.

So why do we not accept credit cards?

You cannot get away from these fees without getting away from the platforms that cause them. Once you bring the networks that cause the fees into the system, you have fees! The problem cannot be solved by using the payment methods which inherently are responsible for the problem.

We created a new electronic payment network that does not use credit cards. We removed all the unnecessary parties involved in the transaction.

How does this $48 billion dollar problem effect you?

The use of electronic payments through these payment networks in the US is just a fact of everyday life. It does increase the cost of goods. For example:

• Paying with a CC forces the vendor to pay the interchange. This cost rolls over to you, charging you more for the item. In the end, the consumer pays for it.
• Every-time a manufacturer pays for raw materials on a CC to earn points. the end product cost goes up. The end consumer pays for it.
• Compounding interchange fees are no different than compounding interest. The more the compound in the life cycle to bring a product to market, the higher the cost of the product.

How is Dwolla so inexpensive?

We do not accept credit cards, and we designed our own payment network. We do not use the large existing systems to transfer money. Bypassing the swipe-fee requires a new system to be used.

How can you help solve this $48 billion dollar problem? How do you avoid high merchant fees?

• Use Dwolla Encourage others to use Dwolla. Sign up on the front page under New Users.
• Dwolla has no swipe fee and no percentage based transaction charge for merchants.
• Negotiate a better price with your vendors by paying with Dwolla or cash.