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Do Credit Card Fees Disproportionately Impact Small Businesses? Retailers Say Yes.

A group of small retailers are headed to Congress this week alongside the National Retail Federation (NRF) to talk about high credit card “swipe” fees and the impact it has on business and inflation. Their proposed solution? More competition in the payments market.

“We have heard many stories from small retailers about the extreme challenges posed by the current payments system and Visa and Mastercard’s continuing monopoly,” explained NRF Chief Administrative Officer and General Counsel Stepanie Martz. “It is small retailers who are calling for swipe fee reform more than any other segment of our industry. They pay the highest swipe fees and have the fewest resources to fight back against global credit card networks and Wall Street banks.”

According to Martz, small retailers want to see the card industry “compete the same as they do.”

Her comments come from a letter to the Senate Judiciary Committee, which held a hearing on “Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems” this week following an announcement earlier this month from Visa and Mastercard that it would be imposing a $1.2 billion dollar increase in swipe fees. Those increases come despite Chairman Richard Durbin joining with Senator Roger Marshall, Representative Beth Van Duyne and Representative Peter Welch to ask Visa and Mastercard to withdraw the increase. The lawmakers concluded in a letter to Visa and Mastercard’s CEOs that the hike would “undoubtedly increase the already high costs consumers are facing and add to inflationary pressure.” According to statistics from the NRF, credit card fees already account for more than $700 a year spent by the average American family.

Visa and Mastercard, which control 80 percent of the U.S. credit card market, centrally price-fix the swipe fees charged by banks that issue their cards even though many legal experts have said the practice violates federal antitrust law, according to Martz’s letter. She also wrote that the two payment giants prevent their credit cards from being processed by competing independent networks, some of which could “do the job more securely and at lower cost.” For those independent networks not blocked entirely by Visa and Mastercard, rule changes are set to put financial pressure on merchants to use proprietary services from the two even if they prefer to use services from competitors.

“Credit card fees have reached the equivalent of a starting salary while there have been no noticeable enhancements with regard to credit card fraud security,” noted Danny Reynolds, owner of Stephenson’s of Elkhart clothing store in Indiana. “Shouldn’t there be free market competition and competitive options, as one would expect with any other sizable business expense? And shouldn’t businesses be able to expect improved security and services to accompany the ongoing increases in fees? The current anticompetitive market does not encourage any such innovation by Visa or Mastercard.”

Baseline swipe fees for Visa and Mastercard credit cards average 2.22 percent of the transaction, but can be higher for small merchants because fees are based, in part, on transaction volume. Because of that, a small retailer with a few dozen transactions a day pay higher rates than larger chain retailers with millions of daily transactions. Fees are also higher for e-commerce transactions, making the pandemic-fueled trend of online shopping even more costly.

““Credit card swipe fees are the largest expense item our business faces and one over which we have little control,” said Patti Riordan, owner of Smoke Stack Hobby Shop in Ohio. “The amount we pay in credit card fees is higher than any operational cost we have other than payroll and rent.”

Swipe fees have been climbing for years, right alongside rates of credit card use by consumers, and the amount charged for Visa and Mastercard credit cards reached a record high of $77.5 billion in 2021, up 26 percent in one year alone and up 180 percent over the previous decade, according to the Nilson Report. Swipe fees for all types and brands of cards doubled over 10 years to total $137.8 billion last year.


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