With inflation at the highest level in 40 years, retailers and consumers are rightly concerned about the cost of goods and services. Curbing inflation is a complex issue that will take time to address, but that doesn’t mean there aren’t steps we can take right now to bring down other onerous costs. Swipe fees added to every purchase made with a credit card, for instance, is one hidden fee that places significant strain on businesses and consumers. If lawmakers are serious about easing the cost burden, then they must work to promote competition in the way people pay for goods.
Amid a global pandemic, Visa and Mastercard announced a plan to increase swipe fees, which have already increased dramatically over the past decade. However, because of overwhelming public and congressional pressure, both credit card issuers claimed they would delay this increase to April 2022, yet they continued raising swipe fees throughout the pandemic. Now, Americans will soon see an even higher fee charged on every credit card purchase, despite our slow economic recovery and the fact that Americans are already struggling to balance their budgets as the cost of goods continues to rise due to inflation.
Those who support this latest increase in swipe fees, like Iowans for Tax Relief President Chris Ingstad, are arguing against legislators speaking out against this swipe fee hike, implying that only big players like Amazon will benefit if swipe fees aren’t raised. This justification could not be further from the truth.
Companies like Amazon can more easily handle the burden of increased costs associated with a rise in swipe fee rates. It is the small businesses, which are already struggling due to the pandemic, that stand to benefit the most from our legislators increasing competition in the payments marketplace that will keep swipe fees in check.
It is important to note that if swipe fees continue to rise, small businesses could be forced to close their doors for good. As the owner of a local grocery store in Bondurant, I know firsthand the cost of swipe fees is among the highest expenditures for small businesses, and those who run on small margins like restaurants cannot absorb the cost of this increase.
Ever rising swipe fees means that businesses must pass these fees onto consumers in the form of higher prices, which basic economics shows us will decrease demand. Suffice it to say, small businesses have no good options when it comes to swipe fee increases, and their financial solvency should be top of mind for policies related to the payments marketplace.
Meanwhile, big banks stand to gain from this latest round of swipe fee increases. Those banks have larger than 30 percent profit margins every year and Visa and Mastercard have profit margins of 50 percent or so. By comparison, retail profit margins are under 3 percent – and they’re even lower in the grocery and convenience sectors. The biggest banks have the largest profit margins of any sector of the U.S. economy and they get the swipe fees that Visa and Mastercard fix on their behalf. Clearly those banks don’t care what small businesses they hurt along the way.
Those who are serious about looking out for small businesses and working-class Iowans should vocally oppose these swipe fee increases. Thankfully, Congress is beginning to pay attention. The Senate Judiciary Committee recently held a hearing to press the executives of Visa and Mastercard about the latest round of increases and a bipartisan, bicameral group of lawmakers sent a letter to the two companies opposing the hikes. Until there is more competition in the payments marketplace, it will be hard to prevent Visa and Mastercard from continuing to raise swipe fees indiscriminately given their monopolistic control over this market.
