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Credit card swipe fees, among the highest operating costs for merchants, are taking a toll on household budgets, according to industry experts.
If a credit or debit card is used, banks and credit card networks will charge merchants a transaction processing fee. It is known in the industry as an exchange rate, although some experts have named it “swipe rate.”
Swipe fees average just over 2% of credit card purchases, but can be as high as 4% for some premium rewards cards, according to the National Retail Federation (NRF), the nation’s largest retail group.
For debit cards, fees from the nation’s largest banks are set by the Federal Reserve at 21 cents per transaction plus 1 cent for fraud prevention and a 0.05% fraud loss recovery fee, but cards from smaller banks are exempt.
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All told, these fees cost retailers more than $170 billion a year. That’s up from 2001 when fees were about $20 billion a year, according to the NRF.
But they are not taken by sellers. Instead, “they’re built into the price of almost everything we buy,” Doug Kantor, a member of the Merchants Payments Coalition’s Executive Committee, told FOX Business. Today, households take in more than $1,100 a year for these fees.
In this photo illustration, a credit card is used to pay for gas on February 07, 2024 in San Anselmo, California. ((Image credit by Justin Sullivan/Getty Images) / Getty Images)
Kantor said these fees are mainly related to purchasing power. Given that “it’s a percentage of your spending, we’ve seen it really explode given the high rate of inflation,” said Kantor, who is also general counsel for the National Association of Convenience Stores.
According to Dylan Jeon, senior director of government relations at NRF, the increased use of credit cards has increased the amount of fees charged. Another important factor, Jeon added, is that Visa and Mastercard control about 80% of the credit card market.
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“That’s what the market forces have allowed them to do to raise money or use new money as they see fit,” said Jeon. “There’s really no competitive pressure. There’s no reason for them to work with vendors or other vendors to get standard fees and cost structures because, again, they’re the two biggest and best players in town.”
That “gives them the freedom of choice to make practices that increase their income and completely leave the market and other sellers out of the way,” he added.
Jeon said large retailers have more flexibility when it comes to how much they can spend. “But when you’re talking about…mom and pop, those sides are razor thin. And this is one area where they have no real bargaining power,” he said.
Kantor said dealer profit margins are 3% on average.
A pile of multi-colored credit cards on a black background (iStock / Stock)
Nick Simpson of the Electronic Payments Coalition, told FOX Business that all payments have a fee and that “credit card processing fees are among the lowest — even lower than cash.”
The EPC published a report in October citing data from Javelin Strategy & Research showing that the average credit exchange rate in the US has held at 1.8% since 2017. Meanwhile, the debit exchange rate has dropped to 0.73% from 2014 to 2022, according to the Federal Reserve.
According to Simpson, the cost of card processing offers benefits to businesses in the form of things like fewer bounced checks, faster payments and less fraud. For customers, these funds help provide fraud protection, security and rewards.
A credit card is inserted into a credit card machine to process payments in La Puente, California. (FREDERIC J. BROWN/AFP via Getty Images / Getty Images)
LendingTree’s chief credit analyst, Mr. Matt Schultz, said there is no indication that if these funds go away, the cost of property will decrease. When the federal government banned debit card fees, for example, “we saw debit card rewards go up overnight. But what we didn’t really see was rates going down,” Schultz said.
However, the issue reached Washington late last year. In November, members of the Senate Judiciary Committee criticized Visa and MasterCard executives for high credit card swipe fees.
NRF is calling for passage of the proposed Credit Card Competition Act, which it says would deregulate Visa and MasterCard by requiring cards from the nation’s major banks to be transferred to at least one competing network such as NYCE, Star or Shazam in addition. on the Visa or Mastercard networks.
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Kantor previously argued that the Credit Card Competition Act would introduce market competition by creating incentives for innovation in pricing and service that would benefit consumers and the economy alike.
Visa told FOX Business that it is constantly improving its network to better serve the businesses and consumers who rely on the company.
“Everything we do is designed to make paying and being paid with Visa easier, safer and more reliable,” said Visa.
MasterCard declined to comment to the Electronic Payments Coalition.
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