How Can the Payments Industry Provide an Economic Stimulus to Keep People Safe?
With COVID-19 roiling the markets and one economic stimulus package already approved, the United States is asking itself a question about as uncomfortable as it gets: how do we keep people safe and healthy without letting the economy weaken beyond repair?
Social distancing, working from home and the closure of businesses nationwide has hopefully done a lot to keep people from getting sick, but a vulnerable population remains exposed to the virus every day: grocery store employees and delivery people. The internet abounds with stories of how these folks’ work is increasingly risky, but how might the payments industry use payments to protect them while at the same time securing the sales of food and groceries? The answer is to promote delivery and pre-paid purchases. To do that, we examined the interchange rate on card-not-present transactions versus card-present transactions. A simple change could both protect grocery store workers and delivery people and at the same time provide economic benefit to grocery and food delivery segments.
In 2019, when you showed up to the grocery store–a viral pandemic the last thing on your mind, your face exposed, no hand sanitizer and a modest package of toilet paper in your cart–and inserted your credit card to pay for your groceries, your credit card company kept about 1.5% of the money you paid them for your purchase. That’s reasonable, right? That interchange rate, relatively low, was based on you standing there, in the flesh and blood, engaging in a series of human background checks so subtle your subconscious probably processed them all without your even noticing: the cashier saw you with their own two eyes, possibly asked you for your ID if you bought alcohol or just to verify your identity for a large purchase, and your own hands swiped the very real plastic card that stood in for your money.
Now, you’re probably having your groceries delivered, or picking them up in order to minimize your exposure to COVID-19. The same goes with take-out or delivering food: at least until the pandemic ends, you shouldn’t have to get within six feet of another person. Yet not every grocery store is accepting payment via app, and, as dangerous and foolish as that may seem, there’s actually a very good reason for that. A transaction via app, where your credit card information is stored in the cloud and without any of the human interaction, costs the grocery store 2.5% in interchange fees. That extra 1% in fees could cripple a grocery store already in crisis, just trying to keep its employees healthy and the supply chain going.
Pre-COVID, the extra fees for interchange made sense. There is simply more financial risk incurred without the card present. But right now, credit card issuing banks have the power to keep essential workers safer and help keep the economy running. How would they do it? Suspending rewards programs might be a way to mitigate the lower interchange rates. DoorDash, Kroger, and others who charge for delivery, if sponsored by a big bank that eliminated the card-not-present surcharge, might in turn be inspired to lower their delivery fee (or get rid of it entirely).
While the Defense Production Act has not been fully invoked, even if it were, it wouldn’t be likely to expand to something as niche as interchange fees. Earlier this week, Senator Kamala Harris called for a suspension of interest fees and penalties, but we say: take it a step further and eliminate that extra 1% for card not present transactions. Credit card companies have a unique opportunity to stay relevant while helping to keep essential workers and those stuck at home safer.
