Currently, consumers are really feeling a financial squeeze. The latest federal government data finds consumer prices, on average, have increased by nearly eight percent over the past 12-months. Grocery store prices are up 12 percent. Gas is up 18 percent. And rent is up 7 percent.
Although not making headline news, one of the contributing factors to ballooning costs is high credit card swipe fees. Now, you may be asking yourself, what in the world is that? Well, you’re not alone—many Americans are unaware of the extra expense. While swipe fees don’t show up on your receipt, they do force businesses to raise prices across the board.
Every time a customer swipes, inserts, or taps a credit card to pay for a good or service, the merchant is charged a fee. And it’s not chump change. In 2021, for example, businesses paid nearly $140 billion in swipe fees to banks and credit card companies. The money—which often accounts for a business’s largest expense behind labor costs—doesn’t stop there. For merchants to remain financially sound, the fees are passed down to consumers in the form of higher prices.
A modest “transaction tax” is warranted given credit card networks provide a service. But an anti-competitive environment is driving swipe fees up to absurdly high levels. Since 2012, as technological innovations have driven the costs of managing transactions down, swipe fees have nearly tripled with no signs of slowing down.
Why? Because of a lack of competition.
Roughly 80 percent of the credit card market is controlled by two corporate heavyweights, Visa and Mastercard. Together, the tag team forms what is effectively a duopoly—allowing the companies to increase swipe fees without concern of backlash because there’s no free market competition. Because in most situations, Visa and Mastercard are the only game in town, merchants have no other choice but to accept the credit cards and swallow the big expenses that inevitably trickle down to consumers.
Fortunately, a bipartisan coalition of federal lawmakers is working to address the problem. Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS) in the upper chamber, and Reps. Lance Gooden (R-TX) and Peter Welch (D-VT) in the lower chamber have introduced the Credit Card Competition Act of 2022. The legislation would foster competition within the credit card market, curbing consumer price increases that are associated with steep swipe fees.
What exactly does the legislation do?
The bill would require big banks that hold more than $100 billion in assets to offer additional options on how a merchant can process the credit cards banks issue to their card users. There are alternatives that offer better service at lower prices without the baggage of Visa and Mastercard. In practice, the new framework will compel credit card companies to compete for a merchant’s business—with one incentive being lower swipe fees.
It’s currently a rough climate for consumers. Price increases are outpacing wage gains—leaving working families struggling to make ends meet. The Credit Card Competition Act can help ease the financial pressure.