At an average of just over 2% of the purchase price, the credit card industry says the “swipe” fees charged to merchants to process transactions are low. But those 2 cents on every dollar add up quickly – swipe fees cost merchants nearly $138 billion last year.
These fees represent the highest cost for most merchants after labor, far too much for small businesses to absorb, and drive up the prices paid by consumers. Sweeping fees cost the average Missouri family $900 last year, according to the National Retail Federation. Most consumers have no idea they’re paying such high hidden credit card fees — and the card industry likes it.
Swiping fees are out of control, climbing 25% last year alone and more than doubling in the past decade. This is because of the lack of competition. Visa and Mastercard – which control 80% of the market – centrally set the swipe fees charged by the huge national megabanks that issue the vast majority of their cards, and these banks all charge the same rather than compete with each other. Visa and Mastercard also prevent transactions on their cards from being processed on independent payment networks, excluding competitors that offer both lower fees and better security.
That’s why Senators Richard Durbin, D-Ill., and Roger Marshall, R-Kan., introduced the Credit Card Competition Act. This landmark bipartisan bill that is quickly gaining congressional support would require the nation’s largest banks to allow credit card processing on at least two unaffiliated networks – Visa or Mastercard plus an independent network like NYCE, Star or Shazam, or even a competing credit card network like American Express or Discover.
Payments consultancy CMSPI estimates the legislation would save merchants at least $11 billion a year, a significant cost reduction that would help keep prices low for consumers.
Unsurprisingly, the card industry is willing to say just about anything to preserve its cash cow. They claim that community banks and credit unions, which play a vital role in our local communities, would be harmed. In fact, the bill only applies to financial institutions with at least $100 billion in assets. That’s only about 30 banks — the biggest of the big ones — and just one credit union (Navy Federal) in the entire country. Local banks aren’t the problem, and not a single Missouri-based bank, no matter how small, would be affected.
Opponents say credit card rewards would disappear. In fact, rewards are provided by major card issuers as a marketing incentive to get consumers to choose their Visa or Mastercard over another issuer’s Visa or Mastercard and have nothing to do with the network. who processes the transactions. The bill only changes who processes the transactions, not who issues the cards or what rewards are offered.
Card companies say security would be at risk. In fact, the Federal Reserve claims that independent processing networks have about a fifth more fraud than the networks of Visa and Mastercard. And the independents are the same networks that process billions of dollars in debit card and ATM transactions every day, trusted by banks and consumers alike. Additionally, the bill would close a glaring security gap in the current system by no longer allowing foreign-controlled networks like China’s UnionPay to be eligible to enter the US market. Currently, any megabank on Wall Street is free to outsource credit card processing to China.
The card industry claims that swipe fees do not contribute to inflation. In fact, as a percentage of the transaction, they automatically increase as prices go up, creating a multiplier effect that consumers can ill afford. While the industry publicly denies this, Visa executives speaking on earnings calls have bragged to investors that they have benefited from higher swipe fee revenue due to inflation.
Finally, those who profit from sweeping fees say that consumers would not benefit from the reform. In fact, merchants shared 70% of the savings from a similar law for debit card transactions with consumers, helping to maintain the prices they charge despite other costs continuing to rise. Consumer prices rose only half of wholesale costs in the first five years after the law took effect in 2011, and three-quarters of merchants surveyed by the Fed were able to avoid price increases.
Missouri Senators Roy Blunt and Josh Hawley are able to join their neighbors Senator Durbin of Illinois and Senator Marshall of Kansas in standing up for small businesses and consumers in Missouri. It’s time for them to co-sponsor the Credit Card Competition Act.
President of the Missouri Retailers Association