He who controls the terms of a debate often controls its outcome. In the case of debit card fees, it's a she who has had a subtle and powerful influence.
In early 2009 Taylor West, a veteran of Democratic political campaigns, was working at a Washington public relations firm that represented two of the retailer trade groups, and having a devil of a time explaining the concept of interchange to mainstream reporters.
"It was a very opaque term," recalls West, who's now the communications director at National Journal. The Martian-speak also went over the heads of small business owners who could be rallied to her clients' cause. "Technical language can limit participation in a debate," she says. "This was an issue that had a lot of stakeholders who didn't know they were stakeholders."
West is widely credited in retailer circles with having coined an alternative, "swipe fees." It caught on, and eventually became a rallying cry for Senator Richard Durbin, the Illinois Democrat who successfully pushed for a cap on debit interchange rates in last year's Dodd-Frank financial reform law. This afternoon, bankers will find out exactly how much they will be permitted to charge on debit transactions when the Federal Reserve Board issues a final rule implementing the Durbin amendment. (Credit card interchange was unaffected.)
West says her term resonates with the public because it "has a concrete action associated with it" — swiping the card at checkout. This "made you think about it every time you use your card."
I'd note several other advantages. "Swipe fee" contains one fewer syllable than "interchange." It fits better in headlines. And the use of the homonym "swipe" has a wry connotation — as if the banks were swiping something from the consumer and then charging them for it.
West insists that subtext wasn't intentional. But she clearly understands how language can shape public debate — which is why people in politics and the media often wrangle and fret over word choices like "pro-life" versus "pro-choice," "estate tax" versus "death tax," "occupied" or "disputed" territories.
Unfortunately for the banking industry, that kind of thought has never gone into the media's or politicians' use of the word "interchange."
Bankers have long used the word to refer to the fee paid by the merchant acquirer (that is, the merchant's bank) to the card issuer. The fee the merchant pays the acquirer was traditionally called the "merchant discount." This includes interchange plus other charges.
But in the public discourse, the difference between the two terms has been blurred for years — in a way that made it easier to believe regulating interchange would directly benefit small business.
Here, for example is Sen. Patrick J. Leahy, questioning a shop owner from a small town in his home state of Vermont during a 2006 hearing: "We have heard some say, 'well, we just do not accept credit cards, and if some other store does not want to pay these interchange fees, well, they should not accept credit cards.' Tell me how practical that would be in Elmore." (Italics are mine)
And here's The New York Times on June 17: "The amendment, which deals with interchange fees charged to merchants each time a customer swipes a debit card …"
The trouble with such imprecise usage is that if you didn't know interchange is not the only ingredient in the merchant discount, you'd be more inclined to accept the proposition that capping interchange by definition means lowering the merchant's fees.
As a prominent lawyer in the payments industry once told me, conflating interchange with the merchant discount is like confusing eggs and omelets. Regulating the price of eggs might make it likelier that omelets will become cheaper, but it doesn't guarantee that outcome. It's still up to the guy who owns the diner.
Merchants counter that it's a distinction without much difference, that this omelet doesn't contain much more than eggs. Brian A. Dodge, a spokesman for the Retail Industry Leaders Association, says interchange makes up 95% of the merchant discount. "It's pretty accurate to call it 'interchange,' " Dodge says.
Accurate or not, "interchange" doesn't exactly roll off the tongue. It's clunky, obscure. It sounds like a euphemism for something you don't want to talk about in front of the kids.
"Swipe fees" is immeasurably more memorable. And I think the best part, for merchants at least, is that they retained their longstanding cognitive advantage. Although Dodge and West both told me the term is meant to be synonymous with "merchant discount," in practice "swipe fees" has been used to refer interchangeably (no pun intended) to merchant-to-bank and bank-to-bank fees. The spread between the two, however miniscule it may be, remained obscured.
Michelle Singletary, writing in the Washington Post in March, wisely questioned whether retailers could be counted on to pass their savings from the Durbin amendment to shoppers. You could also question whether merchant acquirers will inevitably pass on their savings to the merchants — but only if you knew enough to ask.
Think I'm being pedantic, that all this semantic parsing amounts to arguing about how many angels can dance on the magnetic stripe of a debit card? Take a swipe at this blog post by leaving a comment below.
Marc Hochstein is the Executive Editor of American Banker.