A new study by Visa shows the importance of bringing under control “swipe” fees charged to process credit and debit cards as consumers and small businesses move away from cash and the fees exacerbate record inflation in consumer prices, the Merchants Payments Coalition said this week.
“As more purchases are made with cards, costs for merchants go up dramatically,” MPC Executive Committee Member and National Association of Convenience Stores General Counsel Doug Kantor said. “Card companies are dangerously trying to privatize U.S. currency and convince the public that cards are the same as cash, but that simply isn’t true. Merchants receive less than 98 cents on the dollar when consumers pay with a credit card, and the amount siphoned off by swipe fees has skyrocketed in the past decade.”
The fees, Kantor explained, create a multiplier effect that drives inflation even higher and costs merchants and consumers even more. Consumers and retailers need competition and transparency as the card industry uses what he called its monopoly power to control a larger share of the U.S. economy.
“How consumers pay for their purchases has been changing for years, and the move from cash to digital payments – ranging from regular cards, contactless cards and mobile devices in-store to card payments online – has accelerated during the pandemic,” Kantor said. “These fees are most merchants’ highest cost after labor and increase prices for the average family by hundreds of dollars a year.”
The fees desperately need to be brought under control, added Kantor. “Small merchants don’t have any magic pot of money to absorb exorbitant fees charged by the nation’s largest banks and card giants,” he said. “And neither do their customers.”
Visa’s latest Global Back to Business study released this month found 18% of small businesses surveyed are already cashless, 41% expect to accept only digital payments such as cards or mobile payments in the next two years and that 64% will do so in the next 10 years. Meanwhile, 16% of consumers said they no they longer use cash, 25% expect to be digital-only in two years and 53% will do so in 10 years.
The study said 41% of consumers surveyed had abandoned a purchase in a physical store because they could not pay digitally, with numbers higher among millennials (55%) and Gen Z (59%). For the report, Visa said it surveyed 2,250 small business owners and 5,000 consumers in December in nine countries around the world, including the United States, but did not provide a U.S. breakout.
The Visa study follows Federal Reserve studies that show cash accounted for only 23% of purchases in 2020, down from 32% just two years earlier in 2018, while credit and debit cards grew to 65% from 59% in the same period.
When customers pay by cash, merchants receive 100 cents on the dollar, and checks are also cashed at face value. But card networks and the banks that issue their cards take a percentage of the transaction whenever credit or debit cards are used.
For Visa and Mastercard credit cards — which account for nearly 80% of the U.S. credit card market — swipe fees averaged 2.22% of the purchase price and totaled $61.6 billion in 2020, up 137% over the previous decade, according to the Nilson Report. When all types and brands of cards are included, processing fees totaled $110.3 billion in 2020, up 70% over 10 years.
Fees Add to Inflation
The fees drive up prices merchants must charge and equate to an estimated $724 a year for the average U.S. family, according to payments consulting firm CMSPI. As prices rise with inflation, swipe fees go up proportionately because the percentage is based on a larger amount, giving even more to the card industry.
Lawmakers and federal regulators have been taking a close look at the fees. Visa and Mastercard last year postponed $1.2 billion in fee increases following concern from Congress, but said the increases would now take effect this April.
The Federal Reserve has proposed regulations clarifying that banks must enable all debit card transactions to be processed over at least two unaffiliated networks — including at least one competing network such as NYCE, Star or Shazam – rather than just Visa or Mastercard’s networks. And both the Department of Justice and Federal Trade Commission are investigating practices that often block merchants’ right to choose which network processes online debit transactions.