(CNN) – Consumers could soon see even higher prices at some stores after credit card giants Visa and Mastercard increased their “swipe fees” — creating additional costs that some retailers could be forced to pass on to their customers.
Last month, the two credit card companies collected some their interchange rates, or fees that merchants pay on every credit or debit card transaction. These so-called “swipe fees” are then paid to the card-issuing bank, but are largely invisible to the consumer. However, some retailers claim that the additional fees will force them to raise prices or stop accepting certain credit cards altogether.
That Changes in exchange rates – which ones in addition include some cuts, such as certain transactions under $5, the credit card companies said — were due to take effect in April 2020 but have been postponed due to the pandemic.
Two years later, retailers say the timing for increases isn’t much better, citing the worst inflation in 40 years, the ongoing pandemic, supply chain issues, rising costs and broader economic uncertainty.
Also, the recent increases come on top of the fees merchants have already paid to card companies, said Doug Kantor, general counsel at the National Association of Convenience Stores and a board member of the Merchants Payment Coalition.
Credit, debit and prepaid cards were used for $9.4 trillion in purchases last year, according to the Nilson Report, a publication on the payments industry. From those purchases, merchants paid about $138 billion in processing fees, Nilson reported.
“The increases a few weeks ago are really just the tail on the dog,” says Kantor, who assesses this Increases will result in $1.2 billion in additional fees this year.
But at a time when there are more people Choosing to use plastic instead of cash, Kantor and others see a bigger risk in raising those fees: inflation.
Exchange Fees are collected through a complex system in which fees vary by merchant, transaction size, card type, and banking institution, among other things.
In a recent report, Visa noted that a typical swipe fee for its cards includes a flat fee of about 5 cents to 25 cents and about 1.15% and 3% of the purchase price. For example, if a customer pays $100 at a small retailer using a traditional Visa rewards credit card, the retailer would pay $1.53 — 1.43% plus 10 cents — in fees, which would then be passed on to the bank that supports this card.
If fees increase, merchants may need to raise some prices to offset the costs, Kantor said.
“And it really creates this negative vicious cycle: if prices go up a little, fees go up a little, and prices have to go up to offset the increases in fees,” he said. “In times when inflation is very low, it is not so noticeable. But now that inflation is high, it’s really accelerating the whole cycle.”
In a statement, Visa noted that the fees are not billed directly to consumers and are not linked to inflation or the price of goods. However, it said: “As with any line item for their business, merchants price their wares based on their cost…Any increases in interbank fees paid from year to year often reflect an increase in merchant transactions or sales revenue.”
Inflation concerns were highlighted earlier this month during a Senate Judiciary Committee hearing on interchange fees. The hearing was chaired by Senator Richard Durbin, who was behind a 2010 financial reform that limited interbank fees for debit cards.
Retailers push for expansion of Durbin amendment include credit cards, but so far senators have stopped calling for such an extension. Instead, they launched potential reforms such as B. Adding interchange fee disclosures to credit card statements.
“US swipe fees are the highest in the industrialized world and the card system is clearly broken,” Leon Buck, vice president of the National Retail Federation, wrote in an email. “This must not go on like this.”
Visa and Mastercard say the fees have value and purpose: They help fund rewards programs and banking services, and they also help take significant risk out of the equation for merchants by guaranteeing payment, whether or not the customer pays his credit card bill or in cases of fraud.
Banks absorb those costs, which would be higher than the fees paid by merchants, Linda Kirkpatrick, president of Mastercard in North America, said during the Senate hearing.
“Retailers are trying to have this discussion solely on price, separate from value,” said Jeff Tassey, executive chairman of the Electronic Payments Coalition. “And that’s absurd, just as trying to discuss their profits in isolation from value is absurd.”
In her testimony before the Senate committee, Kirkpatrick has highlighted this value in the context of the last two years.
“Electronic payments have kept commerce alive for consumers and small businesses during the pandemic,” she said. “In fact, the US government used our products to quickly provide critical assistance to vulnerable Americans.”
If the Durbin Amendment extends to credit cards, said Ted Rossman, a senior industry analyst for CreditCards.com, he would expect premiums to be cut. But, he said, the prices retailers charge consumers ultimately may not go down.
“Retailers say they would lower prices if they paid fewer card processing fees, but there is no evidence they did so after the Durbin Change and I seriously doubt they would do it now ‘ Rossman said.
If fees aren’t addressed, some businesses could try to respond with surcharges or not accepting credit cards, which then risks turning off customers, especially in an increasingly digital economy, Rossman said.
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