In a recent piece for RealClearMarkets, Indraneel Chakraborty asks the question: “Are credit card swipe fees really too high?” Yet, throughout his piece, Chakraborty makes numerous claims that require clarification in order to accurately understand this issue.
First, Chakraborty says “it is impossible to suggest credit card fees contributed to inflation, since they haven’t increased since 2018.” This statement overlooks the role of percentage-based swipe fees in accelerating inflation of consumer prices. Visa and Mastercard, which control around 80 percent of the credit card network market and which fix the swipe fee rates received by all card-issuing banks within their networks, set swipe fee rates as a percentage of the transaction amount plus a flat fee. For example, Mastercard’s current “Standard” consumer credit interchange fee rate and Visa’s current“Non-Qualified Consumer Credit” rate are both 3.15% + $0.10 per transaction. These swipe fees are then deducted from the payment amount as the transaction is processed, meaning that merchants receive about 97 cents on the dollar and are compelled to raise retail prices to cover the deducted fee amount.
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