(WASHINGTON) – A new study by Visa shows the importance of bringing “swipe” fees charged to process credit and debit cards under control as consumers and small businesses move away from cash and the fees exacerbate record inflation in consumer prices, the Merchants Payments Coalition (MPC) said.
“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. In fact, these fees create a multiplier effect that drives inflation even higher and costs merchants and consumers even more. We need competition and transparency as the card industry uses 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. They desperately need to be brought under control. Small merchants don’t have any magic pot of money to absorb exorbitant fees charged by the nation’s largest banks and card giants, and neither do their customers.”
Visa’s latest Global Back to Business study released this month found 18 percent of small businesses surveyed are already cashless, 41 percent expect to accept only digital payments such as cards or mobile payments in the next two years and that 64 percent will do so in the next 10 years. Meanwhile, 16 percent of consumers said they no longer use cash, 25 percent expect to be digital-only in two years and 53 percent will do so in 10 years.
The study said 41 percent of consumers surveyed had abandoned a purchase in a physical store because they could not pay digitally, with numbers higher among Millennials (55 percent) and Generation Z (59 percent). Visa said 2,250 small business owners and 5,000 consumers were surveyed 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 percent of purchases in 2020, down from 32 percent just two years earlier in 2018, while credit and debit cards grew to 65 percent from 59 percent 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 percent of the U.S. credit card market – swipe fees averaged 2.22 percent of the purchase price and totaled $61.6 billion in 2020, up 137 percent 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 percent over 10 years. 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 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.
Learn more about the Merchants Payments Coalition.
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