After U.S. lawmakers urged Visa and Mastercard to cancel their planned credit card fee hikes on Friday, the National Retail Federation (NRF) today followed suit in asking the “big two” payments processors to put a halt to the plan scheduled to take effect in May.
The retail trade association cited a bipartisan letter from both Republican and Democratic members of Congress saying higher fees would add to inflation, and ultimately trickle down to shoppers who could end up paying more.
“American consumers are struggling under the worst inflation in four decades and these increases would only make the situation worse,” said Leon Buck, vice president for government relations, banking and financial services, National Retail Federation. “Swipe fees are a percentage of the transaction, so banks and card networks are already receiving an unearned windfall as they piggyback on higher prices. They’re going to see billions of dollars more in revenue this year even if rates stay the same, so an increase would only add insult to injury.”
Currently, Mastercard’s extra swipe fees, known as interchange fees, range between 1.15 percent of the initial charge (with 5 cents added) to 2.95 percent of the initial charge, with an additional 10 cents. For Visa, the range fits between 1.15 percent of the charge with an added 25 cents to 2.7 percent of the initial price with and added 10 cents.
The low end of Mastercard’s swipe fee range would increase to 1.45 percent of the price, with 10 cents tacked on, while the higher end would jump to 3.15 percent plus another 10 cents. Visa’s range would jump to 1.40 percent of the charge plus 5 cents, with the top end peaking at 3.15 percent and 10 added cents.
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Interchange rates are traditionally set twice a year in April and October, and take effect starting the next month.
Across the four major card issuers including American Express and Discover, the fees vary for consumers based on whether they pay via credit card or debit card, the type of payment made (card present vs. the contactless card not present) or the type of business hosting the transaction.
“Senators and representatives from both sides of the aisle coming together to address this issue shows that Congress recognizes the impact these fees are having on the small businesses and consumers they represent,” Buck said. “These fees drive up prices for consumers and affect shoppers in every congressional district and state in the country. We stand with lawmakers who are willing to take the side of Main Street over Wall Street.”
On Friday, Senators Roger Marshall (R-Kan.), and Richard J. Durbin, (D-Ill.), and Representatives Beth Van Duyne, (R-Texas), and Peter Welch, (D-Vt.), sent a letter asking Visa and Mastercard to withdraw plans to implement the package of swipe fee increases this month.
The estimated $1.2 billion in increases were scheduled to take effect in April last year, but were postponed after Durbin and Welch said the timing wouldn’t help an economy struggling to recover from the pandemic.
“As Americans are dealing with the highest rate of inflation in decades, your profits are already high enough and any further fee increase is simply taking advantage of vulnerable Americans,” the letter said. “Raising your interchange fee rates even higher will undoubtedly increase the already high costs consumers are facing and add to inflationary pressure, which is the last thing American families deserve right now.”
While these interchange fees aren’t paid directly by consumers, merchants such as retailers, restaurants and convenience stores pay them whenever a customer pays by card. Visa and Mastercard set these fees, which they pocketed as a percentage of the total purchase. Merchants can elect to pass them along to customers in the form of higher prices, most commonly by enforcing shoppers to pay minimums if they are using a credit card instead of cash.
However, one argument for the hikes is that planned fee changes actually could help smaller businesses who are often the most impacted by the interchange fees. For both Visa and Mastercard, the planned fee changes will include both increases and decreases.
Mastercard, for example, is lowering costs for all merchants with transactions below $5. Visa has previously said it will lower fees for some small businesses.
“The April adjustments will lower interchange fees for most small businesses,” Jeff Tassey, board chairman of the Electronic Payments Coalition, which represents card networks and issuers, told the Wall Street Journal. He said the letter from Congress is “evidence that big box retailers don’t like that.”
Banks that issue their cards charged retailers $77.5 billion in credit card swipe fees last year and $28.1 billion in debit card swipe fees, the letter said. Across just Visa and Mastercard, credit card fees totaled $55.4 billion in 2021, versus $53.6 billion in 2019 and $44.4 billion in 2020, when many nonessential stores were closed in the early stages of the Covid-19 pandemic.
Swipe fees for all types and brands of cards totaled $137.8 billion in 2021, more than double the amount 10 years earlier, according to the Nilson Report.
Interchange fees, which average 2.22 percent of the transaction amount for Visa and Mastercard credit cards, are most merchants’ highest operating cost after labor. The fees drive up consumer prices, amounting to more than $700 a year for the average American family, NRF said.