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Can you guess Target's biggest cost after payroll?

Investment blogger TraderMark catches an impressive statistic in a Bloomberg story about credit-card interchange fees.

Target tells the newswire that credit-card interchange fees are the retailer's second-highest expense, exceeded only by payroll.

A battle is brewing in Congress with Visa and MasterCard's lobbyists in one corner and Target and Wal-Mart's lobbyists in the other. Lawmakers are considering new rules to lower the fees, which today can sometimes exceed 3 percent of the purchase price.

A Target spokesman tells Bloomberg that the company has no leverage against the credit-card companies because it's "simply not realistic" to stop accepting plastic.

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Comments (5)

My guess was Real estate-related.

3% to eliminate all collection issues and open up the world of easy credit seems like a pittance.

From what I see in the news it looks like V/MC manage their business better than Target manages its credit portfolio. When credit risk was under control, Target never complained about its usurous profits on its customers.

This is exactly why banks have promoted the Check Card so heavily. For smaller retailers, the fee is often in excess of 5%. What is the result of this? Retailers are forced to jack up prices 5% to cover this fee and we effectively are paying the banks a 5% convenience fee via the retailer for using our "Free" Check Card. Easier than cash? For the bank's bottom line, perhaps.

So the Target and Walmart want the government to jump in when they don't like paying a fee, but the Walton family is the main funder of the effort to end the estate tax. Typical of big business. Government is good when it helps me make money, bad when I'd make more money without it.

Bail me out and get off my back.

I do not know how many people actually realize that every time you use your check card instead of a paper check, the vendor (store) you purchased from is charged this fee. I seem to remember the banking industry telling people it is cheaper to process plastic than paper. Well, it still doesn't cost the vendor anything to deposit checks - it is just more work. Also, having a check returned costs the business a lot of time and money sometimes. Check returned fees are not the cheapest thing in the world. Maybe this is a net result of having such low interest rates over a long period of time......

Go figure it out.

Wouldn't the biggest expense be purchasing the wholesale merchandise that is sold in their retail stores?