Tighter Regulations on Swipe Fees

On May 13, 2010, retailers won a victory over the fees they pay to banks for credit cards. An amendment by Sen. Richard J. Durbin is just one more element of the financial regulation overhaul currently underway the Senate.  The measure allows stores to give customers discounts for paying with cash or using cards with cheaper fees, and it would permit retailers to set price thresholds for accepting credit cards. It also tasks the Federal Reserve with crafting regulations for determining whether swipe fees for debit cards are “reasonable and proportional.”

QUESTIONS:

1. What is the average amount that retailers pay to credit card companies?

2. Explain how a retailer makes a journal entry for a credit card sale that includes these swipe fees.

3. Explain how you believe retailers will make journal entries for sales with cash discounts, under the new regulations.

SOURCE:

Dennis, B. and Y. Mui. (2010). Senate Passes Amendment on Debit and Credit Card Swipe Fees,  The Washington Post, May 14. (Retrievable online at http://www.washingtonpost.com/wp-dyn/content/article/2010/05/13/AR2010051303571.html)

First Twitter, Now Credit Card Exchanges for Everyone

First, Jack Dorsey co-founded Twitter in 2006 and now he wants to change the way we exchange money. Dorsey is leading a startup company called Square that is a tiny credit card terminal that plugs into an iPhone (and soon it will work on Google Android software), allowing small vendors and even individuals to complete credit card transactions from any location. As Tole Hart, an analyst for the Gartner Inc. research firm put it: “It democratizes the receipt of credit card payments.”

Questions:

1.  Assume that the new Square service will cost $15 per month and credit card fees will be 2.5% of sales.  If you are a street vendor selling t-shirts for $20 each (at a cost to you of $7 each) and sell 340 t-shirts (with credit card transactions only) during the month, what journal entry would you make to record the monthly sales?

2.  What type of internal controls might concern you about this new technology? Explain.

3.  What potential for fraud do you anticipate?  Explain.

Source:

Metz, R. (2010). “Device Lets Anyone Accept Credit Cards,” Journalgazette.net (Retrievable online at http://www.journalgazette.net/article/20100118/BIZ/301189951/-1/biz09)