Credit Card Swipe Fees Are Driving Up Holiday Prices

As families shop for the holidays this year, many are grappling with the challenge of making their dollars stretch and wondering why things cost so much whether it’s gifts or groceries. Part of the answer lies in credit card “swipe” fees charged to merchants by Wall Street megabanks and global card networks like Visa and Mastercard to process transactions.

New research from independent payments consulting firm CMSPI shows merchants will pay at least $18.6 billion in credit and debit card swipe fees this holiday season. That’s far too much to absorb, especially for small businesses, and will drive up prices consumers pay for everything from toys to trees and cranberries to cookies.

Swipe fees aren’t just a holiday problem. They have soared more than 50% since the pandemic and hit a record $160.7 billion last year, costing American families over $1,000 annually in higher prices, according to the Merchants Payments Coalition.

Swipe fees are out of control because of lack of competition. Visa and Mastercard, which control over 80% of the credit card market, each centrally set the swipe fees charged by all banks that issue cards under their brands. They also restrict processing to their own networks even though competing networks could do the job for less and have better security. Federal Reserve data, for example, shows that Visa and Mastercard’s networks have eight times the fraud rate of lower cost competing networks like NYCE, Star and Shazam.

Consumers don’t get happy returns. With everyone paying higher prices regardless of whether they use a credit card, over $15 billion a year is transferred from low-income families to higher-income families, according to the Federal Reserve. A recent New York Times opinion video highlighting the impact on a small grocer explained that people at all income levels pay more in hidden swipe fees than they receive in rewards and that swipe fees “subsidize rewards that primarily go to the wealthy.”

Fortunately, Senators Richard Durbin and Roger Marshall have led a bipartisan group of senators and House members in introducing the Credit Card Competition Act. This landmark pro-consumer legislation would ensure that the nation’s largest banks let credit cards be routed over at least one unaffiliated network in addition to Visa or Mastercard. Merchants would then choose which to use, creating competition that would save over $15 billion a year.

Security would also be significantly improved. The competing networks that would be enabled are well-established companies that have been trusted by banks to process ATM and debit card transactions for decades. They would push Visa and Mastercard to improve their networks’ deficient fraud protection to try to keep up with the much more secure competition. The bill would also close a glaring security loophole by barring foreign-controlled networks like China UnionPay from processing U.S. card transactions.

What about credit card rewards? Studies by CMSPI, Verify and others show that people around the world get rewards despite much, much lower swipe fees. Even most merchants give their customers rewards – with profit margins that are less than one-tenth those of the big banks.

Visa and Mastercard impose the highest swipe fee rates on small businesses, so it is no wonder that the smallest merchants are leading the call for reform. The National Federation of Independent Businesses says 92% of members support routing choice and the National Small Business Association has urged Congress to “reject the big bank corporate narrative and support the CCCA.”

The bill has been endorsed by groups as diverse as Consumer Reports, U.S. PIRG and the Hispanic Leadership Fund along with the Teamsters and the Service Employees International Union. And officials in tourism-dependent states have also called for passage, with Nevada Lt. Gov. Stavros Anthony saying swipe fees mean “tourism dollars are shipped back out of the state” whenever a credit card is used at a hotel, restaurant or show.

Hardworking families and small businesses – including independent community grocers – have struggled under the weight of swipe fees for far too long. As Americans navigate the aisles of stores, relief from the burden of swipe fees through passage of the Credit Card Competition Act could be the best holiday gift they receive this year.