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Merchants Call to Bring Swipe Fees Under Control as Card Use Increases

Merchants Call to Bring Swipe Fees Under Control as Card Use Increases

Convenience retailers paid over $10 billion in swipe fees in 2020.

January 27, 2022

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WASHINGTON—Sixty-four percent of small businesses surveyed expect to go cashless over the next decade, while 41% plan to not accept cash within the next two years, according to a new study by Visa. Eighteen percent of small businesses are already cashless. The Merchants Payments Coalition (MPC) says these findings by Visa show the importance of bringing swipe fees under control, as Americans move to more digital forms of currency.

“As more purchases are made with cards, costs for merchants go up dramatically,” said Doug Kantor, MPC executive committee member and NACS general counsel.

The MPC also says that swipe fees exacerbate the record inflation in consumer prices.

“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,” said Kantor. “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.”

Visa’s study found that 16% of consumers said they no they longer use cash. Twenty-five percent 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 Generation Z (59%).

“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.”

In the U.S., credit card swipe fees remain one of the highest operating costs for convenience store retailers after labor, according to NACS State of the Industry data. Consumer preferences for more touch-free transactions and the coin circulation challenge in summer 2020 led to record debit and credit card usage at convenience stores. In 2020, 74.6% of all transactions were paid by plastic, and overall card fees paid by the convenience store industry were $10.7 billion, NACS SOI data indicate.

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.

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.

On Monday, the Federal Reserve released a white paper on the potential creation of a central bank digital currency, a welcome step according to the MPC. Last week, MPC sent a letter to U.S. antitrust regulators to examine swipe fees charged by major credit card companies in the U.S. after Amazon threated to ban U.K.-issued Visa cards in the United Kingdom and subsequently reversed the decision.

The Merchants Payments Coalition represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants.

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