10 things to know about swipe fees

How the Credit Card Competition act will benefit American consumers
Sr. Director, Government Relations

Retailers are constantly adapting to meet shifting customer expectations, offer quality services and provide a seamless experience. The growth of credit card use – whether it be through online purchases, contactless payments or a traditional swipe – shows that shoppers are continuing to move from cash to plastic. Consumers are likely unaware, however, of the high fees charged for every swipe of their card. Those “swipe” fees add up, silently costing shoppers and their favorite retailers billions of dollars.

What are interchange (aka “swipe”) fees?

Every time a shopper uses their credit card, the merchant pays a fee to process the transaction. These fees average 2.24% of the total transaction but can be as high as 4% for premium travel and rewards cards. The swipe fee rate is set by the card network that collects the fee and then pays it out to the bank that issued the card.

How high are swipe fees today?

Visit NRF's Fed Up With Fees headquarters to learn more.

U.S. merchants pay the highest swipe fees in the industrialized world, totaling $160.7 billion annually. Last year, swipe fees from debit and credit cards grew 16.7% from 2021, and credit card processing fees alone increased 20% to $126.4 billion.

Visa and Mastercard account for $93.2 billion of the total for credit cards and 58% of all swipe fees paid last year. No companies have benefitted more than Visa and Mastercard, which have seen their charged swipe fees nearly quadruple since 2009. And the fees continue to rise: Visa has scheduled a fee increase on groceries and fuel in October.

What’s driving the increase in swipe fees?

Swipe fees are growing at a rapid rate because Visa and Mastercard control 80% of the credit card market. They use their dominance to fix the swipe fees charged by banks that issue their branded cards and to block competing networks from processing transactions. As a result of this lack of competition, the Visa and Mastercard duopoly has free rein to set and increase rates without negotiating with merchants. The fee increases are especially egregious considering the fact that since 2021, swipe fees have increased 16.7% while sales have only grown 12.3%.

How do swipe fees impact retailers?

Swipe fees are now typically retailers’ highest operating cost after labor. The fees prevent retailers from growing and investing in their businesses by hiring more staff, offering increased wages and benefits, and keeping prices low to compete. Visa and Mastercard’s duopoly also denies retailers, especially small ones, any negotiating power. That leaves them no choice but to pay the excessive fees because refusing to accept credit cards is not an option. Retailers and their customers are essentially stuck paying the fees with no recourse or relief.

Is there a solution to this broken market?

Thankfully, there is a bill in Congress that would address the anticompetitive practices of the card networks and big banks. The Credit Card Competition Act (S.1838/H.R. 3881) was introduced by Sens. Richard Durbin, D-Ill.; Roger Marshall, R-Kan.; Peter Welch, D-Vt., and J.D. Vance, R-Ohio, along with Reps. Lance Gooden, R-Texas; Zoe Lofgren, D-Calif.; Thomas Tiffany, R-Wis., and Jefferson Van Drew, R-N.J.

The CCCA would require financial institutions with over $100 billion in assets to enable at least two unaffiliated networks — Visa or Mastercard plus a competing credit card network or one of several independent networks. Merchants would then be able to choose which network to use, prompting networks to compete over fees, security and service. Competition in the credit card routing market is estimated to save businesses and consumers $15 billion a year.

How would consumers benefit?

Swipe fees have become too high of a cost for merchants to absorb, which means consumers are footing part of the bill. Last year, the average American family paid over $1,000 in swipe fees. Competition will help lower fees paid by merchants and help them compete more on price to the benefit of consumers.

Competition would also help protect consumers from future price increases, just as it did following debit reform. Studies have shown that savings from debit reform shielded consumers from higher prices that would have resulted from increases in other operating costs for businesses such as transportation and fuel costs. In addition, the Producer Price Index for retail trade industries rose 9.4% from the time reform went into effect in October 2011 through the end of 2016, while price increases to consumers, reflected in the Consumer Price Index, increased only 4.3%.

Are the competing and independent networks secure?

Independent networks like Star, NYCE and Shazam have been found to be more secure than Visa or Mastercard’s networks, according to the Federal Reserve, and have been trusted by banks to securely process debit and ATM transactions for decades.

Increased competition is expected to strengthen card security, not weaken it, through increased innovation and investment in new technologies. Improved card security is sorely needed given the fact that the U.S. has the most credit card fraud globally — with 34% of all fraud in the world — while only accounting for 22% of the world’s transaction volume. The CCCA would also bolster national security interests with the inclusion of a provision that prohibits any network owned by a foreign that poses a security risk, such as China Union Pay, from entering the U.S. market.

Take action

Contact Congress today and tell lawmakers to co-sponsor the Credit Card Competition Act now.

Is this just a big-box retailer bill?

Small retailers stand to benefit more than their larger competitors. The current system puts smaller businesses at a competitive disadvantage: Smaller merchants typically pay higher swipe fees due to their smaller size and lower transaction volume being factored into the fee rate. If more processors are enabled to route transactions, small merchants will be able to work with the networks to get the best deal for their business to help level the playing field.

What will happen to credit cards and rewards programs?

The narrative of rewards points and programs ending is pushed by the card networks and banks whenever debit and credit card reform is under consideration, as was the case in Europe and Australia. Even though swipe fees there now average less than 1%, banks still compete for customer loyalty and significant credit card rewards are still offered in those countries. Retailers also offer rewards and loyalty programs for similar purposes even though the average retail profit margin is less than 2.5%. (Banks average the highest profit margins of any industry, at approximately 27%.)

Cards also won’t have to be reissued. Routing is a back-of-office process that involves the sharing of information between financial institutions and the networks. It does not involve any physical changes to credit cards.

Why should Congress step in to reform the credit card market?

Retailers have asked the card industry for years to come to the table to negotiate or lower swipe fees, as have members of Congress, but the companies have refused. Visa and Mastercard have been taken to court multiple times over 15-plus years, but they’ve been able to tie the matter up with no resolution. Since the networks won’t voluntarily change their practices, Congress must step in to reform this uncompetitive market and provide relief to businesses and consumers who are all paying higher costs and prices.

Retailers and other merchants of all types and sizes are leading the charge on reforming the broken and anti-competitive credit card market. It’s long overdue for the card networks to compete like every other American business. The Credit Card Competition Act would rein in skyrocketing swipe fees, promote increased security and innovation, and benefit consumers. Join our grassroots campaign today.

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