How credit card swipe fees affect shoppers

credit card swipe fees, Which are among the highest operating costs for retailers, and a drain on household budgets, according to industry experts.

When using a credit or debit card, banks and credit card networks will charge retailers a fee to process the transaction. They are known in the industry as interchange fees, although some experts have also called them “rollover fees.”

Swipe fees average just over 2% for credit card transactions, but can be as high as 4% for some premium rewards cards, according to the National Retail Federation (NRF), the nation’s largest retail trade group.

For debit cards, fees from the nation’s largest banks are capped by the Federal Reserve at 21 cents per transaction plus 1 cent for fraud prevention and 0.05% of the transaction to recover fraud losses, but cards from smaller banks are exempt.

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Altogether, these fees cost retailers more than $170 billion annually. That’s up from 2001, when fees were about $20 billion a year, according to the NRF.

But it is not absorbed by retailers. Instead, they’re “built into the price of almost everything we buy,” Doug Cantor, a member of the Merchants Payments Coalition’s executive committee, told FOX Business. Today, families receive more than $1,100 annually due to these fees.

These fees represent a major blow to purchasing power, Cantor said. Given that it’s “a percentage of the amount you spend, we’ve seen it really explode in the face of rising inflation,” said Cantor, who also serves as general counsel at the National Association of Convenience Stores.

According to Dylan Jeon, NRF’s senior director of government relations, the increased use of credit cards has led to a rise in total fees charged. Another key factor is that Visa and Mastercard control about 80% of the credit card market, Jeon added.

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“What market influence allowed them to do was increase fees or implement new fees at their own discretion,” Jeon said. “There’s really no competitive opposition. There’s no reason for them to work with other retailers or merchants to find more reasonable fees and fee structures because, again, they’re the biggest major players in the city.”

He added that this “gives them the freedom to engage in the kind of implementation practices that increase their revenues and leave no room for retailers and other merchants.”

Large retailers have more flexibility when it comes to how much they can charge, Jeon said. “But when you’re talking about … a mother and father, those margins are very slim. This is the area where they don’t have any real negotiating power,” he said.

Retailers’ profit margins are 3% on average, Cantor said.

Nick Simpson of the Electronic Payments Alliance told FOX Business that all payments have costs and that “credit card processing costs are among the lowest — even lower than cash.”

The Consumer Protection Commission published a report in October citing data from Javelin Strategy & Research showing that the average credit interchange rate in the United States has held steady at 1.8% since 2017. Meanwhile, the average debit interchange rate has fallen to 0.73%. From 2014 to 2022, according to the Federal Reserve.

According to Simpson, card processing costs provide benefits to businesses in the form of things like fewer bounced checks, faster payments and reduced fraud. For customers, these fees help provide fraud protection, security, and rewards.

Matt Schultz, senior credit analyst at LendingTree, said there is no indication that if these fees were eliminated that merchandise costs would decrease. When the federal government capped debit card fees, for example, “we saw debit card rewards pretty much disappear overnight. But what we didn’t really see was prices going down,” Schultz said.

However, the issue reached Washington late last year. In November, members of the Senate Judiciary Committee criticized Visa and Mastercard executives over high credit card swipe fees.

The NRF is pushing for passage of the proposed Credit Card Competition Act, which it says would end Visa and Mastercard’s monopoly by requiring cards from the nation’s largest banks to be routed through at least one competing network like NYCE, Star or Shazam in addition. To the Visa or Mastercard networks.

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Cantor had previously argued that the Credit Card Competition Act would introduce market competition by creating incentives for innovation in prices and services that would benefit both consumers and the economy.

Visa told FOX Business that it is constantly improving its network to better serve businesses and consumers who rely on the company.

“Everything we do is designed to make paying and getting paid with Visa more convenient, secure and reliable,” Visa said.

Mastercard deferred comment to the Electronic Payments Alliance.