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Jun 10, 2024

Our View: Credit card swipe fees are a racket

The gouging of American consumers and small businesses by the nation’s credit card giants cannot be allowed to continue unabated. The average American family paid more than $1,000 a year in so-called

The gouging of American consumers and small businesses by the nation’s credit card giants cannot be allowed to continue unabated.

The average American family paid more than $1,000 a year in so-called “swipe fees” last year, according to the convenience store advocacy group NACS.

Swipe fees, also known as interchange fees, are the 2% to 3% that credit card companies charge retailers when a customer makes a purchase. And those companies can set whatever rate they want. Or more accurately, whatever rates they feel they can get away with until people start to notice. That day may have arrived.

The amount raked in by swipe fees jumped 17% to more than $160 billion in 2022, putting the squeeze on small businesses across the country.

But it’s not just retailers who suffer, as the cost of the fees is usually passed along to consumers. And since the fee is calculated as a percentage of sales, and not a flat rate, the out-of-pocket costs for retailers and customers goes up with the rate of inflation.

For those who would say the fees are necessary to ensure the security of the nation’s trillions of credit card transactions, we would counter with the fact that the fees in Europe are a 10th of those in the United States. It’s not about security. It’s about price gouging.

Much of the problem can be attributed to the fact that most of the nation’s credit card business is controlled by two companies: Visa and Mastercard. They can set whatever price they want, and there’s little the rest of us can do about it.

“Worse is that the fees are set by Visa and Mastercard in secret, without public input, and thrust onto banks,” writes Peter Brennan, executive director of the New England Convenience Store and Energy Marketers Association, in a report by CommonWealth Magazine.

“Retailers have no choice but to accept the terms set by Visa and Mastercard, which control roughly 83% of all credit card volume in the United States,” Brennan said. “Overall, card fees paid by the convenience store industry were up 44% last year and 82% in 2022.

For many retailers, the cost of these fees is higher than their rent and utilities and represent their second-highest cost, after only labor. Where does it end?”

President Joe Biden and a bipartisan group of lawmakers have vowed to rein in the card giants.

The Credit Card Competition Act now before Congress aims to boost competition and break up the duopoly held by Visa and Mastercard. It would require that big banks that issue credit cards allow at least one network that isn’t Visa or Mastercard to be used for their cards. Retailers could finally have a real choice.

“Interchange fees are effectively a tax on commerce,” Shopify president Harvey Finkelsetin told CNBC. “We began to notice that these fees kept climbing and climbing and climbing, and we felt that something was up.”

Big banks and the credit card giants say the law would force them to kill off popular points reward programs, but that argument is unconvincing.

“Credit card rewards are unlikely to disappear based on current issuer margins on rewards and experience from other markets,” the global payments consulting form CMSPI reported in a new research paper on the topic.

CMSPI estimates the new law, if passed, would save merchants and customers $15 billion a year in swipe fees. That would be 70 times the amount of any expected reduction in rewards, the study said.

It’s long past time to inject competition into what has become a costly duopoly.

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