In the face of an inflation crisis pushing consumers to their limit, Congress is looking to decline rising credit card swipe fees. As credit and debit become the preferred option for consumers, these fees can pile up for businesses. Only 12% of American consumers use cash on a daily basis, with credit or debit cards making up some 80% of all in-store transactions.
And it’s not just retail consumers who like to swipe. 48% of B2B transactions in all sectors are done electronically, and that number will likely rise as B2B buyers and sellers recognize the convenience and ease of ecommerce.
Swipe fees are one of the major obstacles to going completely cashless that businesses face. Swipe fees can cost businesses anywhere between 1.3% and 3.5% on each transaction, but a bill currently in Congress aimed at lowering those fees may change that.
The bill, called the Credit Card Competition Act, was introduced in the Senate by Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) and in the House of Representatives by Representatives Peter Welch, D-Vt., and Lance Gooden, R-Texas. The bipartisan bill takes aim at Visa and Mastercard’s control over the networks that process credit card transactions. This would be accomplished by requiring banks that issue credit cards to offer more than one network for credit card processing. Theoretically, this would foster competition and lower fees.
The term “swipe fees” encompasses a number of different fees that are added to each credit or debit transaction, which are paid to different stakeholders. The card-issuing bank receives an interchange fee, the payment network receives an assessment fee, and the company that manages the network receives a processing fee. In other words, when a customer pays with a Barclays Visa to a company using Square as their processing company, Barclays gets an interchange fee, Visa gets an assessment fee, and Square gets an interchange fee. These fees are paid by the business receiving payment by credit or debit.
Visa and Mastercard raised these swipe fees for the first time in two years in April. Now, swipe fees are 70% higher than they were 10 years ago. These fees average anywhere between 1.3% and 3.5% of the total transaction cost. Fees are lower for debit card transactions than for credit transactions, and are sometimes waived entirely for debit cards.
As credit transactions become more popular and cash goes the way of the personal check, rising fees may result in higher prices for consumers, which has the potential to worsen the inflation crisis. On its face, the bill is an attempt to break the hold Visa and Mastercard have over these processing networks and lower costs for businesses, which could in turn lower costs for consumers.
Critics of the bill worry that a reduction in fees will lead to decreased security for electronic transactions, as these fees serve to cover the expense of security and fraud-detection implementations. These security costs will be passed on to banks and credit unions, who will then pass on the cost to their customers. So it’s a matter of who is passing on the cost to whom: higher fees causing merchants to pass on the costs to their consumers, or lower fees resulting in higher costs for banks to pass on to their customers.
Whether or not those fears come to pass, retailers and suppliers alike will welcome the lower fees for debit and credit transactions that could result from the passage of this bill.