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Credit Card Swipe Fees are Abusing Market Power at the Expense of - Small Businesses and American Consumers

Posted: Jun 17th, 2021 - 6:51 am

From the way we work to the way we shop, the COVID-19 pandemic has brought about a multitude of changes across all aspects of our lives. One of these changes revolves around the way we pay for the goods we purchase. Cash is no longer king. Contactless payments are at an all-time high and more Americans than ever are relying on their credit and debit cards to purchase goods and services. While this transition to a more convenient and sanitary form of payment has been a long time coming, the stranglehold that credit card companies currently have on this sector should cause serious concern for anyone who values small businesses and a competitive market.

Credit card companies like VISA and Mastercard charge small businesses exorbitant sums of money in the form of swipe fees. These fees are set by Visa and Mastercard but collected by the banks without competition on price. The fees far exceed any operational costs. And, small business owners have been hit hard by the ever-increasing cost of these fees. Business owners point out that these fees have more than doubled from 2012 to 2019. Why do these costs continue to rise as processing and handling technology improves and gets cheaper?

The steep cost of the fees, which average more than 2 percent but can be as high as 4 percent of the purchase, is only part of the problem. The lack of competition that allows for these arbitrary rates to go unchallenged is the more important issue. According to the Nilson Report, in 2019 swipe fees amounted to a shocking $93 billion, and an estimated $67 billion of that was from Visa and MasterCard credit cards.

Unfortunately, small merchants lack the leverage to fight for lower rates. With cash quickly becoming a thing of the past, businesses have no choice but to pay the fees if they want to accept any form of electronic payments from credit or debit cards. And accepting these types of payments is non-negotiable if businesses want to stay afloat, as 38 percent of point of sale payments made in 2020 were made with credit cards and 29 percent were made with debit cards. For small business owners these fees are becoming a significant cost that is second only to the cost of staff wages, a fact that has caused many merchants to fear for their businesses and livelihoods.

As contactless payments continue to become more prevalent and cash continues to phase out, ensuring that large credit card corporations like Visa and Mastercard aren’t monopolizing the sector at the expense of small businesses and consumers is paramount.

It’s up to our elected representatives, especially those who are members of the Senate Banking Committee, to promote swipe fee reform and urge federal regulators to investigate the way these corporations are abusing their market power. Fortunately, the committee has leaders like Ranking Member Pat Toomey (R-PA), who knows small businesses and free markets are the backbone of this country’s economy, and should support policies that will help them thrive. I am hopeful that members of the committee will continue to fight for competitive markets that benefit both small businesses and American consumers.

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