Op-Ed Todd Johnson: Concern over inflation renews need for competitive payments marketplace
As inflation continues to drive soaring costs across the U.S., Americans are in need of relief. Unfortunately, as Capitol Hill begins its mad dash to raise the debt limit prior to the New Year, credit card companies are yet again planning to hike swipe fees. This move will hit businesses and spike already high prices on everyday products for American consumers. North Carolinians are counting on our Congressman Patrick McHenry, as the ranking member of the House Committee on Financial Services, to oppose another swipe fee increase.
Swipe fees are charged to a merchant every time a consumer uses a credit card for their purchase. These fees were originally intended to help cover the costs of electronically processing these transactions. As technology advanced, processing transactions became less costly. Rather than enjoying the additional savings accrued as expenses declined, credit card companies have used their monopolistic power over the payments marketplace to aggressively and periodically raise fees.
Visa and Mastercard dominate the credit card industry and fix the fees that banks all across the country charge. This price-fixing, without market competition, means these companies raise swipe fees indiscriminately and with little fear of backlash. Over the course of a decade, swipe fees paid grew from nearly $26 billion in 2009 to over $67 billion in 2019 between the two companies.
Unfortunately, these fees raise prices for consumers across the country and hurt merchants’ bottom lines. Given how reliant Americans have become on card payments, merchants and their customers will find no relief if lawmakers don’t support increased competition that will drive down swipe fees. Last year, credit cards jumped to the second most used payment method, barely behind debit cards, leaving businesses with few options to avoid burdensome swipe fees.
Small businesses already operate on slim profit margins, and swipe fees can tack on an extra 1.5 to 3.5 percent to every transaction. This forces merchants to pass fees onto consumers through increased prices on everyday goods. For example, grocery stores and supermarkets operate on average with an extremely thin 1 to 3 percent profit margin. This means any slight change in their expenses, such as an arbitrary increase in swipe fees, could mean the difference between your local market going under or raising prices beyond what Americans can afford.
North Carolinians are already struggling with post-pandemic inflation, as evidenced by an increasing number of visitors at local food banks and charities, which are also finding it harder to stretch their dollars for the same amount of food they used to be able to afford.
Despite the already growing burden of inflation, Visa and Mastercard have plans to follow through on their swipe fee increases that were originally scheduled for 2021. After strong opposition from the public, the two major credit card companies rescheduled the fee increase for April 2022. All of this ignores that the card companies take a growing share of money on every penny of inflation even if they don’t change their rates at all. That is because they charge a percentage of the transaction amount. So, they make a windfall on inflation without any changes to their rates. As the new deadline for anti-competitive increases approaches, merchants and the American people need Congress to support reforms that encourage fair competition and end this exploitative practice.
For too long, Visa and Mastercard have continued to force higher fees on merchants and higher prices on consumers with no justification. It’s time for Capitol Hill to come up with solutions that expand competition to break up the price-fixing of the payment marketplace. Representative McHenry has displayed strong leadership as the ranking member of the House Committee on Financial Services, and North Carolinians need him to deliver lower fees and prices for merchants and consumers by improving competition in the credit card industry and strongly opposing the upcoming swipe fee increase.
