U.S. Treasury's Financial Management Service Concludes: Federal Government Should Negotiate, Not Regulate

This report confirms that there are opportunities in the free market to negotiate what any merchant – including the federal government – pays to accept debit and credit cards.  The report lays out a roadmap of suggestions that could save the Federal government as much as $39 million annually.  Conspicuously absent from this roadmap was any recommendation of regulation or legislation to achieve this objective.  Further, the report specifically recommends no changes to the existing infrastructure:

"Treasury believes that any strategy to negotiate reductions in the Federal government's interchange costs must be achieved within the current card processing infrastructure, without substantive changes to systems and work flows." (p. 2)

The federal government recognizes the benefits that they derive from accepting cards as payment.  In 2008, the U.S. Government Accountability Office issued a complementary report that speaks to the benefits the government receives by accepting debit and credit.(1)  The report showed that, through the acceptance of debit and credit, the federal government has been able to improve the efficiency and management of U.S. tax dollars through reduced costs associated with bad checks and even cash thefts.  According to the Federal Reserve, check acceptance was one of the most expensive forms of payment acceptance, as 187 million checks bounced in 2006, for a total value of $210 billion.(2)

While the FMS report was focused only on debit and credit acceptance expenses, this previous report by the GAO highlighted the cost savings and revenue increases as a result of card acceptance.  Entities such as Amtrak, the U.S. Postal Service, and the U.S. Mint reported increased revenue – particularly online – due to debit and credit card acceptance.  The report also details that FMS officials in 2008 had identified various improvements that would result in ongoing cost savings.

In a November 2009 report, the GAO further concluded that regulation of interchange fees, as has been proposed in Congress, would result in harm to consumers, small financial institutions, and even merchants themselves – such as the federal government – if doing so resulted in reduction of availability of credit and reduced retail sales.(3)

Like any other expense the government – or any business organization – pays in the course of doing business, being proactive in negotiating all business expenses can improve bottom line results.