By Epiphany Communications: Coaching & Consulting*
Both the U.S Senate and House recently dropped bills to address swipe fees by bringing competition to a broken market.
The Credit Card Competition Act was reintroduced in June in both the House and the Senate, after not being brought up for a vote in either chamber during the previous Congress.
As reported, the measure aims to bolster competition for credit card processing networks by requiring big banks to allow at least one network that isn’t Visa or Mastercard to be used for their cards. This would give merchants who pay interchange fees a choice they otherwise rarely get.
CNBC News reported in late July that nearly 2,000 retailers, platforms and small businesses are urging lawmakers to pass the bill. Retailers in support of the legislation argue credit card processing costs are hurting consumers by driving up the cost of business and, in turn, the price shoppers pay at checkout.
“MIRA members are small business owners who operate on very thin margins,” said Bill Wild, MIRA president and CEO. “These excessive credit card fees in the United States, which are 5 to 7 times larger than in Europe and large parts of Asia, significantly impact our members ability to compete or even stay profitable. We urge Congress to swiftly pass this bipartisan legislation.”
MIRA is not alone. NACS announced its support for bipartisan legislation.
“Our stores compete every day for consumers’ business—as does every other business in the country. In the broken credit card market, no competition means an open invitation for these large multinational corporations to continually increase rates and to only focus on what benefits them, as opposed to the customer,” said Henry Armour, NACS President and CEO.
The bills address swipe fees averaging over 2% of the transactions that banks and card networks, like Visa and Mastercard, charge merchants to process credit card transactions. Credit and debit card swipe fees have doubled over the past decade, soaring from $22 billion in 2022 alone to a record $160.7 billion.
“The processing fees are crazy high,” said Johnny Karmo, owner of Market Square. “I have three markets and 97% customers use credit cards, debit cards or some kind of electronic pay like Apple Pay, and I take all of them.”
Karmo pays slightly south of a $1 million in fees every year between all three stores with American Express having the highest fees at 2.5% per transaction. “They are high, and I guess they figure they can charge it because they are guaranteed sales.”
Today, his businesses do very little in cash. “Our clientele uses these cards because many like to rack up the points they earn,” said Karmo. “Stores in the city or other areas may not be paying as much as I do because they deal more in cash.”
Karmo recently switched his processing company to one that specializes in gourmet foods. “The rates are slightly lower but still very high,” he said. “Profit margins in our business are slim. A 2% margin before taxes is a good year for us.”
Another financial loss for stores, Karmo noted, is the purchase of gift cards. “I am not sure why this is happening but there seems to be a lot of fraud when people purchase gift cards with credit cards,” said Karmo. “We get the approval upon purchase and then the person later denies the purchase of the gift card and we lose money. We have lost a lot of money over the years because of gift card purchases using a credit card.”
Meanwhile, both bills would require the largest U.S. banks that issue Visa or Mastercard credit cards to allow transactions to be processed over at least two unaffiliated card payment networks—the same process that has been used for debit card transactions for more than a decade. The proposed legislation only applies to banks with more than $100 billion in assets, exempting most banks and credit unions in the United States, including community banks and other small and mid-sized regional banks.
The legislation proposes an open marketplace for credit card processing in which retailers could choose the payment network to handle a transaction. Currently, networks equipped to route these transactions have been blocked from entering the market by Visa and Mastercard, which dominate the U.S. market and issue 83% of all credit cards.
The bills would also help lower fees and fraud. According to the Federal Reserve, most competing networks currently shut out by Visa and Mastercard charge lower fees and have less fraud, but consumers are unable to benefit from these options. The legislation also would strengthen security by prohibiting foreign networks like China Union Pay from being a network on credit cards issued in the United States.
In the United States, banks that issue Visa and Mastercard credit cards charge a swipe fee that averages 2.25% of the purchase price when the cards are processed over Visa or Mastercard’s networks. These rates are the highest in the world, seven times higher than the average rate in Europe.
Credit and debit card swipe fees have more than doubled over the past decade and are now $160.7 billion a year, according to the Nilson Report, which is considered the most trusted source of statistics in the payments industry. These fees cost the average American family more than $1,000 a year.
Wild encourages MIRA members to reach out to their members of Congress and ask that they support the Credit Card Competition Act.
According to reports, credit card swipe fees for the convenience retailing industry have increased a staggering 82% between 2020 and 2022 and now stand at $19.5 billion.
*Writers with Epiphany Communications: Coaching & Consulting are content creators for Bottom Line.