Taking on credit card swipe fees with the Savvy Shopkeeper

Retail Gets Real episode 322: Small business consultant and boutique co-owner Kathy Cruz is fighting for fairness in the credit card market
Sheryll Poe
NRF Contributor

Independent retailer Kathy Cruz is a busy woman. After 20 years in law enforcement, she decided to open her online home décor boutique The Salvaged Boutique with her sister. Eighteen months later, she opened a bricks-and-mortar location in Lakewood, Ohio.

Cruz also has a second business: The Savvy Shopkeeper provides business coaching, online resources and a community network for other independent retail store owners. In addition, she hosts the Savvy Shopkeeper podcast to help other store owners learn to work smarter, be more profitable and grow their business.

Kathy Cruz
Kathy Cruz, co-owner of The Salvaged Boutique

“I understand the pain points of what it is to run a retail business now,” Cruz says on this episode of Retail Gets Real. “I can empathize with everyone in my community. Whether they listen to the podcast or they’re on my email newsletter, or they’re in my network, I can empathize with them.”

Cruz has also taken on another task — advocating for reform to the broken and unfair credit card market. This summer, Cruz flew to Washington, D.C., to meet with members of Congress in support of the Credit Card Competition Act, which would enhance credit card competition and choice in order to reduce excessive credit card fees.

“When … we run a transaction through our store for the customer and they swipe their credit card, we’re essentially losing 3% to 4% percent of that transaction because we’re paying credit card companies for the fees to process the transaction, and 3% to 4% percent in a retail bricks-and-mortar business is substantial. It is a big percentage to us,” Cruz says.

Visa and Mastercard control 80% of the U.S. credit card market and single-handedly set the swipe fees charged by the thousands of banks across the nation that issue their cards. For many small and independent retailers, those fees often end up being the top business expenses they incur.

Action Center

Visit NRF’s action center and tell congress to reform the broken credit card market.

“The fees that we pay can be really damaging to a retail business,” Cruz says. “It becomes an issue in terms of sustaining our businesses and keeping our doors open. Second, we don’t want to have to continuously increase our prices. We also don’t want to pass on surcharges to our customers.”

The CCCA would increase competition by requiring banks to enable at least two competing processing networks on each credit card issued by the nation’s largest banks. The increased competition could save merchants and consumers over $15 billion annually. Those savings could go to hiring more employees, giving back to the community and providing better customer service, Cruz says.

“What leads to most small retailers closing is cashflow, so it’s incredibly important that we all support each other on this and that we speak up because we need to help each other as much as possible in this arena,” Cruz says. “That’s what I want all small retail store owners to do, to reach out to Congress and to use their voice to tell them how this is affecting them.”

Listen to the full episode to learn more about Cruz’s career journey, what she’s most proud of in her law enforcement and retail careers, and how she is fighting for fairness in the credit card market. Then go to the NRF Action Center to write your member of Congress and ask them to support the Credit Card Competition Act.

Episode transcript, edited for clarity.

Bill Thorne: Welcome to Retail Gets Real, where we hear from retail's most fascinating leaders about the industry that impacts everyone, everywhere, every day. I'm Bill Thorne from the National Retail Federation, and on today's episode, we're talking to Kathy Cruz, who is the co-founder of The Salvaged Boutique, as well as a small business consultant, retail advocate and fellow podcaster. 

Now we're going to talk to Kathy about her growing business, supporting her fellow business owners, and why she's passionate about the retail industry. For today's conversation, I'm going to hand the mic over to my colleague, Meghan Cruz.

Meghan, take it away.

Meghan Cruz: Thank you, Bill. I'm so excited to make my Retail Gets Real hosting debut with my friend Kathy Cruz, and we're so excited that you're here today to share a little bit about your story and also talk about some of the ways that you advocate for retail. 

Before we dive into the subject matter—the Credit Card Competition Act and excessive credit card swipe fees—why don't you tell us a little bit about you and your retail journey?

Kathy Cruz: Yeah, I'd love to. First, I want to say thank you. Thank you for having me. Thank you to the National Retail Federation. I really appreciate the opportunity to come on here and share my story and share why I think this is so important. 

So, I'm trying to think of how I can keep this really simple. It's been a bit of a journey, but I spent nearly 20 years in law enforcement and during my last few years as a detective, I started a retail business with my sister. It was more of a creative outlet, and it was a blog where we shared about home décor projects and refurbished furniture. And within 18 months, we went from an online retail business model to a brick-and-mortar business. And although it was a creative outlet, I took owning a retail store really seriously. Just having a business, I took it very seriously. 

And I think it was a combination of my business background. I have a degree in marketing and business — although that was a long time ago — paired with my entrepreneurial drive, I just wouldn't let myself treat this like a hobby. So, I was motivated to build a profitable business from day one.

And then I realized how hard it is to do this in independent retail. Probably in retail in general. Margins are incredibly low when you own a brick-and-mortar store. So, a few years after we opened our door, I started Savvy Shopkeeper, my second business, and it was also started as a blog. Except this blog was more mission-driven, I would say. I wanted to really help other store owners learn how to work smarter, be more profitable, grow their businesses. 

So, over the past five years, since I started Savvy Shopkeeper, it turned into a retail podcast, online resources and education for brick-and-mortar retail store owners, business coaching and a network for independent retail store owners. So needless to say, it's been an interesting path, but I wouldn't change it, and I'm really, really passionate about independent retail in general.

Meghan Cruz: Yeah, absolutely, and I think it's really interesting about your story. You had a whole other career before retail. Tell us about that.

Kathy Cruz: Oh boy. Again, I feel like, where do I begin? I served on base patrol. I was a uniformed police officer, probably for around eight years, and then I moved into the role of a detective. And in that capacity, I served in different units in the general detective bureau. I was in crime analysis, where I learned a lot about mapping software and identifying crime patterns and using data to piece cases together. I really, really found that interesting. 

The other thing that I love is that a lot of those skills that I learned in that career apply to what I'm doing now. You would never think that, but it applies to what I'm doing now. And then I spent the last three years of my career as a homicide detective, and of course, that was probably the most impactful and the most challenging. But I really, really appreciate the work that I did when I served in law enforcement.

Meghan Cruz: Yeah, absolutely. I mean, we always talk about how retail is an industry of innovation and reinvention, and you certainly did that with yourself and your experience. 

I think our listeners will appreciate hearing your experiences prior to the retail industry. You mentioned your Savvy Shopkeeper network that you started. What inspired you to start that?

Kathy Cruz: When I started the blog and I started to show up in some free Facebook groups just to connect and network, I could see the conversations where everyone who owned a retail store was craving what I was craving — some community. 

Definitely education because there's so much on the internet, but so much of the information on the internet isn't specific to owning a brick-and-mortar retail business, and there are certain benchmarks or pieces of information that are specific to us, but it's really challenging to find. I realized that that's what I needed to grow was the community, and then from there offer the education and learn from all of them, including myself — what else did I need? — because I still own a store. I didn't mention that I still own the store, co-own the store with my sister. 

So, I understand the pain points of what it is to run a retail business now. I can empathize with everyone in my community. Whether they listen to the podcast or they're on my email newsletter, or they're in my network, I can empathize with them, so I had to learn what it is that they needed the most so that I can fill that gap.

Meghan Cruz: Absolutely, and that's how we met was through your involvement through your network. You've created this amazing network of small businesses across the country who are willing to share information and share ways that you all can work together for the betterment of the retail industry. 

So that leads me to your advocacy work with the NRF. So, Kathy, you came to Washington, D.C., with NRF this summer to advocate for reforms to the broken and unfair credit card market — advocating for passage of the Credit Card Competition Act. 

So, credit card swipe fees are fees that, every time a customer comes into your store and presents a credit card, there's a fee associated with that. Tell us what you see in your stores. What goes through your mind when a customer comes in with a credit card? What happens and how do those swipe fees, also known as interchange fees, affect you?

Kathy Cruz: Prior to educating myself, and really working with the NRF on this, and learning from you, too, from your organization, my thought process was: Serving the customer was a priority, and if they had a credit card, it's OK. People would say all the time, “Do you prefer cash or credit?”

I have a very different opinion now. I now say, “Yes, I will take cash” where before it was, “Whatever works better for you.” 

And the reason I now say, “Yes, I'll happily accept cash,” is because I realize how impactful these high fees are. So, when a customer runs a transaction through our store, we run a transaction through our store for the customer, and they swipe their credit card, we're essentially losing 3%-4% of that transaction because we're paying credit card companies for the fees to process the transaction. 

Three-to-four in a retail brick-and-mortar business is substantial. It is a big percentage to us. It may not seem like it to the average consumer, but to us, it makes a really big difference because our margins are so low. We don't have a lot of wiggle room in order for our businesses to survive.

Meghan Cruz: Yeah, absolutely. And of course, those transactions vary in cost. Higher rewards credit cards — you see folks come in with those platinum cards — those charges can be up to 4%. So, you're right, it's an absolute big portion of the transaction that you have to pay to the card issuing banks with zero ability to negotiate. Is that correct?

Kathy Cruz: Yeah, and then when you pair this with the fact that consumers are driven towards a cashless society, when we look at our numbers, we will look at the number of transactions that are, you know, run through our businesses, and we see that 70- 90% of those transactions are run with credit cards. And that means we're only accepting maybe 10%, 20%, 30% in cash. Cash is where we won't incur any fees. Yeah, the credit cards, the, the fees that we pay can be really damaging to a retail business. 

We often find that it ends up being one of the top five business expenses for us. And you think some of our business expenses are large. Rent is a substantial amount that we pay. Payroll is a substantial amount that we pay. So, the fact that credit card fees — and it's a business service that's provided to us, we understand that — the fact that that can be a number three or four or five seems unusually high to me for a service that's provided to us.

Meghan Cruz: Absolutely. Before we move forward, I have a few facts that I'd like our listeners to know about credit card swipe fees. Credit card swipe fees are most retailers’ highest operating expense, after labor. You just shared it as your third highest operating expense, but oftentimes it can be the second-highest expense and that's, you know, more than employee benefits. That's more than rent. It's extremely expensive for retailers. 

Retailers also paid over $160 billion in interchange fees, and those fees have doubled over the past decade. Right now, Visa and MasterCard — those are the two credit card processing networks — they control over 80% of the market, and have blocked competing networks from processing transactions, meaning they have almost complete control over the market. 

Visa and MasterCard just announced last month that they plan to increase swipe fees for small businesses by over $500 million starting this month. That's on top of last year's increase of $160 billion, as well.

And, of course, this doesn't just affect small businesses or retailers. This affects consumers who shop in your stores. The average family pays over $1,000 because of credit card swipe fees, and that's in the form of either higher cost or surcharges. 

Laying out all those alarming statistics, what does that make you think and how does that make you feel about the impact on your business but also your consumers?

Kathy Cruz: It becomes an issue in several ways. It becomes an issue in terms of sustaining our businesses and keeping our doors open. You know, you often hear people say there's so much in the media about how brick-and-mortar is dying. It really isn't. It is not. I guarantee it is not. 

But the reason why there is so much turnover in the brick-and-mortar retail business industry is because margins are so slim, and having credit card fees as high as they are — it's damaging. 

So, in that respect, it's important to me that we do something about this because we all want to keep our doors open. We really contribute to the local economies, and we really contribute to the communities that we serve. We do so many things for the communities that we serve, including employing. 

We probably employ — independent retail employees the most number of people across the country, even over big-box stores. And I might, I think I'm correct on that. I see you shaking your head. Yes. I think I'm right there. For sure it's important to me because we want to keep our doors open.

Second, we don't want to have to continuously increase our prices. If we have to, of course, we’ll do that so that we can keep our doors open. But that doesn't establish a good relationship with our customers. So, we want to serve our customers, and the best way to do that is to have prices that are reasonable. We also don't want to pass on surcharges to our customers. That's not serving them well. For us, customer service is key. It's what differentiates us from big-box retail. And in order to stand out in that way, passing on a surcharge or fees to our customers doesn't create the best customer service experience possible and that's really important to us. 

I would say those are probably the two most important things. Then the other part of it too, is — if you consider that we're paying 3%-4% in credit card fees, and it is a top three expense in many cases, then if you take that amount that we're paying in fees, that could actually employ one other or two other full-time employees, multiple part-time employees, and that's really important in an independent retail — not only to serve our local economy, but to get help. Because when you're running a store by yourself, it's really overwhelming. And there are a lot of solo shopkeepers out there, but if we want to grow and we want to continue to impact the economy, we have to hire help. But we can't do that if we're spending all of this money on credit card fees.

Meghan Cruz: Absolutely. So, we know we have a massive problem. Credit card swipe fees are out of control. There's no competition in the market. But we have a solution and it's called the Credit Card Competition Act. It's a bipartisan, bicameral bill that Congress is currently considering that would address the anti-competitive market by requiring only the largest financial institutions that issue credit cards — those are banks with more than $100 billion in assets — they would be required to enable a second competing credit card routing network to all credit card transactions. 

So, our hope in this legislation is that it would prompt Visa and MasterCard, and their competitors, to compete on rates, service and new technologies, and that will help all retailers, but of course, small retailers in particular would benefit. We also estimate that competition in the market would save an estimated $15 billion a year for consumers. 

So, Kathy, you came to Washington, D.C., this summer to advocate for the Credit Card Competition Act. Why do retailers, and small businesses in general, need competition in the market, and why should Congress pass this bill?

Kathy Cruz: Yeah. I mean, I think it's just a fair practice, right? There are reasons why there's legislation in place around forming competitive markets. I think that's just important for the economy overall. 
And it's interesting because this morning I received an update in my phone, a notification in my phone. It was an article [from] the New York Times that said, “U.S. consumer prices rose 3.7% in the year through September.” That literally came across my phone this morning and I thought, “Well, yes, of course it went up 4%.”

I'm no economist, for sure, but this contributes to it, and I think having a more competitive market is going to alleviate this. Some of the things that I learned through education, through the NRF, and going to D.C., was that there are other countries who have passed legislation, and this has helped lower the rates in those countries. And that's what we're hoping for. That even if you can cut that 3%-4% in half, it would make a huge difference for all of the small businesses across the U.S.

Meghan Cruz: Absolutely. As you know from your time in D.C., this bill is a heavily contentious bill. Of course, the banks and card networks are throwing everything they have at this to ensure that this bill is not passed. They stand, obviously, to lose a significant revenue stream that small retailers like yourself pay to them every year, so they're throwing everything they have at this, including a lot of misleading information about the bill. One of the things that our opponents say is that this bill is only going to benefit big box, the largest retailers in the country. As a small retailer, what do you have to say to that?

Kathy Cruz: I laugh at that. The interesting thing is, it's the independent retailers, the smaller brick-and-mortar retailers that are paying the most in fees. So, this will help us tremendously. 

I also want to add, because I think this is important, too, I don't want anyone to think that independent retailers are trying to avoid paying any expense in their business. We understand that the processing of credit cards is a service, and we will pay for that service. 

But I like to give this example, and I did this every time I talked to someone when we were lobbying Congress. I gave this example because it's a relatable example. We pay for email marketing software. We pay for point-of-sale systems. We pay for inventory management software — and the thing about those industries is they have competition in those, so, we have a variety of companies to choose from. If I'm looking to implement email marketing in my business and pay for that service, I can choose from dozens of email marketing companies. But in this case, with credit card companies, there's a duopoly that exists, so I don't have options. I can't choose a payment plan, or an option, or a service that's the best fit for my-sized business. It's kind of like one-size-fits-all, and/or the smaller retailers get hit the most. So, this will just make a huge impact for us.

Meghan Cruz: Absolutely, and just to clarify, small retailers pay higher interchange rates, and that's because those are based on the volume of transactions, so obviously, small businesses who have smaller transactions would pay higher fees. 

So, obviously we've talked about your involvement as an advocate. Tell our listeners why they should get involved and help NRF and the larger retail industry advocate for the Credit Card Competition Act.

Kathy Cruz: So when all of this came about and I had the opportunity to go to D.C., I actually published a survey to everyone in my audience — anyone who's willing to fill out the survey, who owned a brick and-mortar retail business, my podcast listeners, my network members, my email subscribers, people that follow me on social media — and I asked retail store owners how saving on this expense would help them, their businesses and/or their customers. 

And the response was really overwhelming, in the sense that it wasn't, “Oh, I'll pay myself more. I'll profit more.” It was really more about who they're serving. It was, “I'll hire more, I'll stop raising my prices. I'll give back to my community more. I'll give my employees a small raise so that I can retain them, and that the turnover in my business and employment isn't high. I'll make them happier, which will then in turn be a good reflection on my business, and we'll pass on better customer service to our customers. We'll pass on a better experience to our customers.”

And I think that's why it's so important is that — indie retailers are also very passionate and they're passionate about their communities, and we give back in ways that most people just don't know. We don't always have to scream from the rooftops everything that we do, but I think that's why it's important that we all speak up, because lower prices, of course, that will lead to happier customers, too. 

And personally, I am rooting for the store owner as well. Yes, I want to provide customers a better experience, and I want to provide them better service, but I think what's really important is that I advocate for small business owners. And again, I can't stress it enough that brick-and-mortar is far from dead, but what leads most small retailers to closing is cashflow. 

So, it's incredibly important that we all support each other on this, and that we speak up because we need to help each other as much as possible in this arena, and I think that's why it's important that we reach out to Congress and that we speak up and that we share our personal experiences because that's what I found was important is that, yes, we can — I don't want people to just regurgitate the facts. I want them to really share how this affects them, and I think that's what I want all small retail store owners to do is to reach out to Congress, and to use their voice to tell them how this is affecting them.

Meghan Cruz: I'd like to share with our listeners how they can get involved in our fight for fairness in the credit card market. NRF has a digital tool on the NRF Action Center, which is at nrf dot com slash take action. We have a grassroots action alert where you can easily write your member of Congress to ask them to support the Credit Card Competition Act, and we encourage all listeners and retailers to do that action to make sure Congress knows how important this is. 

While we still have you, I will pivot a little bit just to ask you a few other questions. Looking back at your career, what are you most proud of?

Kathy Cruz: Oh, that's a great question. It depends on the career I'm talking about. My former career — I'm most proud of just being able to bring families some peace of mind and giving people justice that they deserved. 

In my current career, unfortunately, we recently lost one of our group members unexpectedly. It really showed me the importance of support and community. We really have bonded in my network and my group, and that shows how much we need each other. And I think that's what I'm so most proud of is building this community where retailers genuinely support each other, cheer each other on, find missions like this where we realize we have to speak up to Congress because we have to do this for one another. We want all want our businesses to survive. So that's probably what I'm most proud of in this current career.

Meghan Cruz: That's great. We have a lot of students that listen to Retail Gets Real. What is your best piece of career advice?

Kathy Cruz: Oh, I would have to say — and this usually surprises people — work on your mindset first. Mindset will determine so much because you can conquer fear, confidence issues, all of those things, if you work on yourself first. Like invest in working on yourself and building that confidence in creating the skills that you need to move forward, and you will grow. The other stuff will come along. But I really think that working on yourself should be a priority.

Meghan Cruz: I could not agree more. Thank you, Kathy Cruz, for joining me today on Retail Gets Real. I've so enjoyed our conversation and I'm looking forward to continuing our fight for fairness in the credit card market and reining in excessive swipe fees. 

Kathy Cruz: Thank you, Meghan, I appreciate it. 

Thorne: And thank you all for listening to another episode of Retail Gets Real. You can find more information about this episode at RetailGetsReal.com. I'm Bill Thorne. This is Retail Gets Real. Thanks again for listening. Until next time.


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