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Credit card swipe fees, One of the highest operating costs for retailers, it cuts into household budgets, according to industry experts.
When a credit or debit card is used, banks and credit card networks charge retailers a fee to process the transaction. This is known in the industry as a transaction fee, although some experts have also coined it a “hitting fee”.
According to the National Retail Federation (NRF), the nation's largest retail group, swipe fees average just over 2% of the transaction for credit cards, but can be as high as 4% for some top rewards cards. be
For debit cards, fees for the nation's largest banks are set by the Federal Reserve at 21 cents per transaction plus 1 cent for fraud prevention and 0.05% of the transaction for fraud loss recovery, but cards from smaller banks are exempt.
Retail trade group urges passage of bill that would cut credit card 'swipe fees': Here's why
Combined, these costs cost retailers more than $170 billion a year. According to the NRF, that ratio peaked in 2001, when spending was about $20 billion a year.
But they are not attracted by retailers. Instead, they're built into almost everything we buy, Doug Cantor, executive committee member of the Merchant Payments Coalition, told FOX Business. Today, households incur more than $1,100 a year in these costs.
In this photo, a credit card is used to pay for gas on February 7, 2024 in San Anselmo, California. (Photo by Justin Sullivan/Getty Images) / Getty Images)
Cantor said the fees would be a big blow to purchasing power. Given that they're “a percentage of what you spend, we've seen that blow up in the face of higher inflation,” said Cantor, who also serves as general counsel for the National Convenience Store Association. ”
According to Dylan Jeon, senior director of government relations at the NRF, increased use of credit cards has increased total charges. Another key factor, Jeon added, is that Visa and MasterCard control about 80 percent of the credit card market.
Small businesses deserve relief from skyrocketing credit card fees
“What market leverage has allowed them to do is basically raise fees or implement new fees really at their discretion,” Jeon said. There's no reason for them to work with retailers or other merchants to find more reasonable fees and fee structures because, again, they're the two big, major players in town.
“It allows them to kind of implement methods that increase their revenue and really leave no recourse for retailers and other merchants,” he added.
Jeon said larger retailers have more flexibility in how much they can charge. “But when you're talking about a … mom and pop, those margins are very thin. And that's one area where they have no real negotiating power,” he said.
Retailers' profit margins average 3 percent, Cantor said.
A stack of colorful credit cards on a black background (iStock)
Nick Simpson of the Electronic Payments Coalition told FOX Business that all payments have a fee, and “credit card processing fees are among the lowest — even lower than cash.”
The EPC released a report in October citing data from Javelin Strategy & Research showing that the average credit exchange rate in the U.S. has held steady at 1.8% since 2017. Meanwhile, the average debt swap rate has reportedly fallen to 0.73% from 2014 to 2022. to the Federal Reserve
According to Simpson, card processing fees bring benefits to businesses in the form of fewer bounced checks, faster payments and less fraud. For customers, these fees help provide fraud protection, security and rewards.
A credit card is inserted into a credit card machine to process payments in La Puente, California. (Frederick J. Brown/AFP via Getty Images/Getty Images)
Matt Schultz, senior credit analyst at LendingTree, said there's no indication that commodity costs will drop if those fees go away. For example, when the federal government capped spending on debit cards, Schultz said, “We saw the rewards on the debit card disappear pretty much overnight. But what we didn't really see was a drop in prices.”
However, it reached Washington late last year. In November, members of the Senate Judiciary Committee criticized Visa and Mastercard executives for high credit card swipe fees.
The NRF is pushing for proposed credit card competition legislation that it says would end the monopoly of Visa and MasterCard and require cards from the nation's largest banks to be routed through at least one competing network, such as NYCE, Star or Shazam. to Visa or MasterCard networks.
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Cantor previously argued that credit card competition law would introduce market competition by creating incentives for price and service innovation that benefited consumers and the economy.
Visa told FOX Business that it is continuously strengthening its network to better serve the businesses and consumers who rely on the company.
“Everything we do is designed to make paying and paying with Visa easier, safer and more reliable,” Visa said.
Mastercard deferred comment to the Electronic Payments Alliance.