While many in the U.S. are concerned about the impact of tariffs on inflation, retailers are pointing to a more immediate and definite source of price increases: credit card swipe fees.
Financial institutions, card processors, and networks such as Visa and Mastercard each levy a charge for processing credit card transactions. These charges, collectively known as “swipe fees,” typically range from 1% to 3% of each transaction. Visa and Mastercard, who dominate about 80% of the card processing market, paused their fee increases in 2020 due to the pandemic and in 2021 facing congressional pressure. However, fee increases resumed in 2022. According to a notification from Global Payments, Visa is set to raise some fees it charges merchants and banks starting in January.
Swipe fees represent one of the largest expenses for merchants, second only to labor costs, and these fees are often passed on to the consumer. Experts indicate that these fees now cost the average American household over $1,100 each year, a significant rise from $900 in 2021. Without legislative intervention, these costs are expected to keep rising. Despite a general 20% increase in consumer prices since the pandemic, swipe fees have surged by 50%, reaching a record $172 billion in 2023, according to the Merchant Payments Coalition.
“Inflation rates are decreasing, yet swipe fees continue to escalate, increasingly cutting into holiday budgets,” stated Stephanie Martz, a member of the MPC executive committee and NRF chief administrative officer and general counsel, in a recent release.
Are Swipe Fees Justified?
The fees charged help cover the costs of securely transmitting payment data across the network, authorizing and settling transactions, reducing fraud, and providing rewards programs such as cash back and points, according to payment companies.
Card transactions “enhance the customer experience, boost sales, and ensure timely payments to merchants,” commented Richard Hunt, executive chairman of the Electronic Payments Coalition, a lobbying organization, earlier this month.
The EPC also challenges the notion that swipe fees have significantly increased, stating that over the past five years, the average swipe fee has been about 1.8%, in contrast to the roughly 20% inflation rate.
“Instead of casting blame, large retailers should examine their own practices,” the EPC suggested on its website, referencing recent scandals over corporate price hikes.
Michael Hershfield, CEO and founder of fintech company Accrue, countered, “That assertion is misleading. While fees as a percentage of transactions might appear stable, the total dollar amount has significantly increased as consumer spending has grown. … So, in a broader view, fees have definitely not remained flat.”
What Actions Can Congress Take?
For years, Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) have advocated for increasing competition in the credit card processing industry to help lower swipe fees. Since Visa and Mastercard control the majority of the market, they essentially set the fees that most businesses are compelled to pay.
“Retailers often have no choice but to accept these fees,” Hershfield noted. “It’s a take-it-or-leave-it situation enforced by the Visa and Mastercard duopoly.”
Durbin has introduced the Credit Card Competition Act, which mandates that merchants have access to at least one card processing network other than Visa or Mastercard for routing credit card transactions.
“This would give small businesses a genuine choice: continue using the Visa or Mastercard network and pay high interchange fees, or opt for a more affordable alternative,” Durbin explained during a Senate Judiciary Committee hearing last month.
Will the Credit Card Competition Act Pass?
While the bill has garnered some notable support, including from Vice President-elect JD Vance, it is unlikely to be passed by the 118th Congress, which ends on January 3.
However, merchants remain hopeful. “It will pass, it’s a matter of when, not if,” asserted Doug Kantor, general counsel of the National Association of Convenience Stores.
Senator Thom Tillis (R-NC) also mentioned in last month’s hearings that merchants, along with Visa and Mastercard, need to collaborate to find a fee solution that benefits both consumers and small businesses within the next 24 months. He warned that if they do not, “the solution coming from Congress will not be favorable for anyone.”
In the meantime, merchants should proactively manage their situations, advised Eric Cohen, CEO of Merchant Advocate, which assists businesses in reducing their fees. “Merchants need to negotiate (fees) and become educated on what is happening,” Cohen said. “While large stores may have the ability to do this, smaller merchants often lack the knowledge because they do not understand the complex and opaque language used in fee structure contracts.”
Similar Posts:
- Unlock Savings on Credit Cards with CFPB’s New Tool: Avoid Reward Scams
- Take Control: CFPB’s Latest Rule Empowers You as the Boss
- Why Scrapping the CFPB Could Cost Americans Billions: Unpacking the Debate
- Inflation Crisis Hits: Low and Middle-Income Americans May Cut Spending for Years
- Bitcoin vs. XRP: Which Will Be the Top Investment in 2025?
Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.
