Swipe fees drive up inflation and ‘consumers ultimately pay the price’

Credit card companies refuse to halt anti-competitive behavior

After years of relative quiet, congressional concern is mounting about constantly increasing “swipe” fees that payment networks and banks charge retailers to process credit and debit card transactions. The fees, which are most merchants’ highest cost after labor and drive up the prices consumers pay, soared 24 percent last year to an all-time record of $137.8 billion.

Swipe fees have more than doubled over the past decade, and cost the average American family more than an estimated $900 a year. These rising fees come as the nation is facing the highest inflation in 40 years. As a percentage of the transaction, swipe fees automatically go up when prices increase. In doing so, they act as a multiplier that drives inflation even higher.

Seeking badly needed relief for small businesses and consumers, a bipartisan group of lawmakers this spring asked Visa and Mastercard to withdraw plans for a $1.2 billion increase scheduled for April. The group said it would add to inflationary pressure and was “the last thing American families deserve right now.”

Small retailers

Learn more about the effects that swipe fees have on small businesses in our latest press release.

Visa and Mastercard — which centrally price-fix the swipe fees charged by the banks that issue their cards and have been criticized in the past year for a growing string of anticompetitive practices that let them control 80 percent of the credit card market — refused.

That was the last straw for Senate Judiciary Committee Chairman Richard Durbin, D-Ill., who responded by calling a May 4 hearing on “Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems.”

Despite the plea, “they didn’t listen” and “did it anyway,” Durbin said at the hearing. “Today we’re going to talk about a hidden fee that fuels the fires of inflation across America every day,” he said. “When swipe fees on credit and debit cards go up as they just recently did, it increases inflation and consumers ultimately pay the price.”

Durbin wasn’t the only member of Congress who was upset. The committee’s senior Republican, Senator Charles Grassley of Iowa, said the fees “are eating into already-tight margins, especially for small business owners.” Senator Marsha Blackburn, R-Tenn., voiced concern for “how this contributes to out-of-control inflation” and said the increase means “a package of Oreos is going to cost more” for parents packing lunches for their children.

Senator Mike Lee, R-Utah, questioned the take-it-or-leave-it price-fixing of the fees as “anticompetitive cartel behavior for banks through the Visa and Mastercard networks.” Witnesses outlined how price-fixing means banks don’t compete for merchants’ business by setting their own fees, and how the networks’ “honor all cards” rule means retailers that accept any Visa and Mastercard credit card must accept all of their credit cards regardless of the issuing bank and fees charged.

Unlike the thousands of suppliers of food products and household goods she works with daily, Giant Eagle supermarket chain CEO Laura Shapira Karet called Visa and Mastercard “the only vendors that Giant Eagle cannot negotiate with.” She said the April increase will cost her company alone $1.3 million a year. And with a profit margin of only 1 percent — compared with 50 percent at Visa — she has no choice but to pass the increase along in higher prices.

In a letter to the committee, NRF said small businesses are the hardest hit by swipe fees and “are calling for swipe fee reform more than any other segment of our industry.”

Take action now

Make your voice heard through our Action Alert and learn what NRF is doing to advocate for swipe fee reform.

Executives from Visa and Mastercard sidestepped inflation in their testimony, instead saying competition has “never been more pressing” because of options such as digital wallets, real-time payments, cryptocurrencies and buy now, pay later. But National Association of Convenience Stores General Counsel Doug Kantor, testifying on behalf of the Merchants Payments Coalition headed by NACS, NRF and other merchant groups, said “this isn’t about other forms of payment. This is about credit cards.”

Despite the witnesses’ silence on the issue, Kantor cited a recent earnings call where Visa Chief Financial Officer Vasant Prabhu said with “inflation driving up ticket size, clearly it’s beneficial to us.”

At the conclusion of the hearing, Durbin promised, “This conversation will continue.” While details remain to be determined, he said potential swipe fee solutions could include transparency to show consumers the now-hidden fees on their monthly credit card bills.

Durbin said credit card companies should no longer be allowed to collect a “tax on top of a tax” by charging swipe fees on sales tax. Exclusivity rules that keep Visa and Mastercard credit cards from being processed over independent networks like Star, NYCE or Shazam that charge less but offer better security should be eliminated. And, most of all, he said central price-fixing of the fees by Visa and Mastercard should end.

The hearing was called to demand answers and gather facts. It was a deep dive into how lack of competition has allowed swipe fees to skyrocket. Visa and Mastercard’s answers clearly failed to justify why the fees are so high and the claims they made were easily refuted by other witnesses. They didn’t even attempt to apologize for the contribution they have made to inflation that is making it challenging for many American families to make ends meet.

We believe the committee has laid the groundwork to develop solutions that will provide small businesses and American consumers with relief that is desperately needed. U.S. swipe fees are the highest in the industrialized world and the card system is clearly broken. This cannot be allowed to continue. Watch the video below.

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