The credit card market in the United States is broken, favoring Wall Street banks over Main Street retailers. All retailers that accept credit cards are forced to pay exorbitant and non-negotiable “swipe” fees every time a customer pays with a credit card. Visa and Mastercard dominate the current market, setting the fees charged by all banks that issue their cards along with the terms for usage and forcing merchants to foot the bill.
Small retailers are hardest hit by high credit card swipe fees, especially during this period of inflation. They pay the highest swipe fees in the industrialized world but have the fewest resources to fight back against global credit card networks and Wall Street banks. As such, they want to see competition in the payments market more than anyone.
We spoke with five small retailers to learn more about how hidden swipe fees impact their businesses.
Tell Congress to support the Credit Card Competition Act.
Higher prices for customers
When merchants accept a credit card, they are stuck: Whichever network is on the card dictates all the prices and terms for the thousands of banks that issue cards. “We have no choice but to incorporate the high swipe fees into our prices,” says Ann Wingrove, owner of Completely Kentucky in Frankfort, Ky.
In April, Visa and Mastercard imposed a $1.2 billion increase in credit card swipe fees, forcing retailers to pay even more to accept credit cards. Swipe fees are particularly burdensome for small retailers because they are based, in part, on transaction volume. Small retailers with a few dozen transactions per day pay a higher percentage than national retailers with millions of transactions. “This is unfair to our customers and puts small businesses at a disadvantage,” Wingrove says.
Stifled growth and expansion
Swipe fees are the highest operating cost after labor for many retailers. Credit card fees average just over 2% of the transaction but can be as much as 4% for some premium rewards cards. “This is an unnecessarily large cost of operations for most retailers,” says Rebecca Block, owner of Buffalo Exchange in Tucson, Ariz. “After the cost of goods, labor and rent, swipe fees have become our next largest expense line item.”
Swipe fees are the highest operating cost after labor for many retailers.
For Rolf Williams, owner of Jerrol’s, an office supply store in Ellensburg, Wash., excessive swipe fees are hindering him from hiring much-needed staff, as the amount he pays annually is equivalent to the salary of a new employee. “We spent $38,000 last year in credit card fees,” Williams says. “That is a full-time position that we couldn't hire for.”
Other small retailers like Margaret Hansen of Off Main Gift Shop in Manasquan, N.J., see swipe fees as an additional hurdle to stay in business, especially amid hardship caused by the COVID-19 pandemic and the economic downturn caused by inflation. “As a small business owner, I pay thousands of dollars a year in credit card processing fees,” Hansen says. “Small Main Street businesses are suffering right now to stay open. The money I pay in credit card fees could help me keep my doors open.”
Wall Street versus Main Street
The current structure of the credit card market pits Wall Street against Main Street by giving a disproportionate amount of power to set prices and terms of use to banks and card networks. “As an independent retailer, we are at the mercy of the huge corporations that issue credit and debit cards,” says Lisa Ellis, owner of the Cactus Quilt Shop in Tucson, Ariz.
Because Visa and Mastercard dominate the market and issue over 80% of all credit cards, they have blocked competitors that offer lower fees from processing transactions made on their cards.
As a result of this lack of competition, credit card swipe fees continue to rise year after year. And since they are a percentage of the transaction cost, they increase with every cent of inflation. “For every percentage point they raise swipe fees, I can’t pay employees or buy more inventory,” Ellis says.
A solution that could save billions
In a move long awaited by the retail industry, Sens. Richard Durbin, D-Ill., and Roger Marshall, R-Kan., introduced S. 4674, the Credit Card Competition Act of 2022 in July. The bill makes important reforms to the credit card market by requiring that there be two competing processing networks enabled on each card. One could still be Visa or Mastercard, but the other would have to be an unaffiliated independent network like NYCE, Star or Shazam, or even American Express or Discover. These reforms have the potential to save American businesses and consumers an estimated $11 billion per year.
Join NRF in calling on Congress to reform the broken and unfair credit card system and support the Credit Card Competition Act by participating in our grassroots campaign.
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