With the acceleration in online shopping and widespread use of contactless cards and mobile payments in stores during the coronavirus pandemic, almost every retail purchase made today is paid for with a credit card or debit card.
That’s a change that may be here to stay, but it’s bad news for merchants and consumers alike, especially those still struggling to recover from the economic impact of COVID-19.
The reason is that credit card networks and the big banks charge merchants a “swipe” fee averaging about 2 percent of the purchase amount every time a credit card is used, whether it’s swiped, inserted or used via a digital wallet. Those fees add up quickly, totaling almost $100 billion a year. They are among most merchants’ highest cost and drive up prices by hundreds of dollars a year for the average family.
U.S. swipe fees are the highest in the industrialized world, seven times the amount allowed in Europe. They’ve gotten there because of lack of competition – credit card swipe fees for Visa and Mastercard are set centrally by the two giant card networks, and virtually every bank that issues their cards charges the same rates rather than competing to offer lower rates. Legal experts say that’s a violation of antitrust law. Furthermore, transactions on Visa credit cards can only be processed over the Visa network and the same goes for Mastercard and its network. By contrast, debit cards can be processed over a dozen competing networks, which offer better security and lower fees than Visa and Mastercard.
Not surprisingly, banks and the card networks want to protect the status quo. They want to continue making enormous profits on the backs of small businesses and working-class consumers. They love the windfall they’ve seen during the pandemic and are already planning a huge increase in fees next year.
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It’s time to bring competition to credit card swipe fees.
Arch Simonson, Simonson Station Stores of North Dakota, Grand Forks
