Retail Sales

May 5, 2022
Retailers Say Small Businesses Hardest Hit by Rising Credit Card Swipe Fees

The National Retail Federation (NRF) and a group of small retailers told Congress small businesses are the hardest hit by high credit card “swipe” fees that are driving up inflation and that they want to see more competition in the payments market.

“Ongoing and unwarranted increases in swipe fees are especially damaging to small retailers,” Stephanie Martz, chief administrative officer and general counsel for NRF said. “We have heard many stories from small retailers about the extreme challenges posed by the current payments system and Visa and Mastercard’s continuing monopoly. It is small retailers who are calling for swipe fee reform more than any other segment of our industry. They pay the highest swipe fees and have the fewest resources to fight back against global credit card networks and Wall Street banks. They want the card industry to compete the same as they do.”

Martz’s comments came in a letter to the Senate Judiciary Committee, which is held a hearing on May 4 on “Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems.”

The hearing was held after Visa and Mastercard last month imposed a $1.2 billion increase in swipe fees even though Chairman Richard J. Durbin, D-Ill., joined with Senator Roger Marshall, R-Kan.; Representative Beth Van Duyne, R-Texas, and Representative Peter Welch, D-Vt., in asking Visa and Mastercard to withdraw the increase. The lawmakers said the hike would “undoubtedly increase the already high costs consumers are facing and add to inflationary pressure.”

“At a time when retailers of all sizes are facing supply chain disruptions, labor shortages and rampant inflation in a still-recovering economy, the dramatic increase in swipe fees and the lack of competition in the U.S. payments system require close examination by Congress,” Martz said. “Lack of competition is why swipe fees keep rising, and it is necessary that Congress demand answers.”

NRF’s letter included comments from a number of small retailers impacted by swipe fees:

  • “As the use of credit cards has become more and more prevalent, the credit card companies are making more and more money from merchants. When we first opened our business, credit card transactions accounted for approximately 40 percent of our business. Now the credit card share is about 80 percent of transactions. At the same time, fees have risen and the time taken before funds appear in our accounts gets longer. This is one more burden for merchants.” – John Morman, owner of Celtic Tides gift shop, Lexington, Virginia.
  • “Credit card fees have reached the equivalent of a starting salary while there have been no noticeable enhancements with regard to credit card fraud security. Shouldn’t there be free market competition and competitive options, as one would expect with any other sizable business expense? And shouldn’t businesses be able to expect improved security and services to accompany the ongoing increases in fees? The current anticompetitive market does not encourage any such innovation by Visa or Mastercard, who represent over 85 percent of our credit card transactions, and we small businesses have no choice but to pay up.”
    – Danny Reynolds, owner of Stephenson’s of Elkhart clothing store, Elkhart, Indiana.
  • “Credit card swipe fees are the largest expense item our business faces and one over which we have little control. The fact that swipe fees are a percentage of the transaction amount is particularly punitive to our hobby business when we sell higher priced items and especially during these inflationary times. The amount we pay in credit card fees is higher than any operational cost we have other than payroll and rent.” – Patti Riordan, owner of Smoke Stack Hobby Shop, Lancaster, Ohio.
  • “As a third-generation business owner, every year is becoming more challenging. The last two years have seen enormous cost-of-goods increases, payroll increases and freight increases, and now skyrocketing inflation has driven these costs even higher. As we struggle to stay ahead of it all, we are unable to have any effect on our second-largest expense, credit card processing fees. These fees just keep climbing every year. Even though this year my sales are down, my credit card fees are up. We need to reform this system. It is broken and unfair.” – Jessica Bettencourt, President and CEO, Klem’s hardware, gifts and clothing store, Spencer, Massachusetts.

Martz said Visa and Mastercard, which control 80% of the U.S. credit card market, centrally price-fix the swipe fees charged by banks that issue their cards even though many legal experts say the practice violates federal antitrust law. The two networks don’t allow their credit cards to be processed over competing independent networks that could do the job more securely and at lower cost. In addition, recent rule changes would put financial pressure on merchants to use proprietary services from the two even if they prefer to use services from competitors.

While swipe fees for Visa and Mastercard credit cards average 2.22% of the transaction, they can be far higher for small merchants because they are based, in part, on transaction volume. Small retailers with a few dozen transactions a day pay a higher rate than national retailers with millions of transactions. Fees are also higher for e-commerce transactions, which have become increasingly important to small retailers because of the shift to more online shopping since the beginning of the pandemic.

Regardless of size, the fees are most merchants’ highest operating cost after labor and drive up consumer prices, amounting to more than $700 a year for the average American family. As a percentage of the transaction, they go up as prices go up, creating a multiplier effect for already-soaring inflation.

Swipe fees have been climbing for years, and the amount charged for Visa and Mastercard credit cards reached a record high of $77.5 billion in 2021, up 26% in one year alone and up 180% over the previous decade, according to the Nilson Report. Swipe fees for all types and brands of cards totaled $137.8 billion last year, more than double over 10 years, according to Nilson.