$794 billion. That’s how much Visa and Mastercard’s swipe fees have increased since the last time the Senate Judiciary Committee held a hearing on the topic in 2006. And it’s one of the reasons the chairman of the com- mittee, Senator Dick Durbin (D-IL), felt dialogue on the matter was long overdue.
NACS has long advocated for Congress to address Visa and Mastercard’s dominance of the payment card market and the skyrocketing fees that result from the lack of competition in the space. This spring, Sen. Durbin, along with Sen. Roger Marshall, (R-KS), Rep.
Peter Welch, (D-VT) and Rep. Beth Van Duyne, (R-TX), wrote to Visa and Mastercard asking the card companies to withdraw their planned swipe-fee increases. The lawmakers said the increase would add to inflationary pressure and is the “last thing American families deserve right now.”
However, Visa and Mastercard blatantly ignored their request, and their rate hike took effect April 22. The increases predominantly focused on “card not present” transactions and amounted to $1.2 billion. In response to the card firms’ dismissal, Durbin called for a hearing.
NACS TESTIFIES
Entitled “Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems,” the May 4 hearing featured witnesses from the credit card industry, the retail industry and a consumer group. NACS General Counsel Doug Kantor and Laura Shapira Karet, CEO of Giant Eagle, testified on behalf of the retail industry. They sat on the panel with executives from Visa, Mastercard and Commerce Bank. Also testifying was Ed Mierzwinski, from U.S. Public Interest Research Group (US PIRG), a consumer group.
“Today we’re going to talk about a hidden fee that fuels the fires of inflation across America every day,” stated Durbin as he opened the hearing. “When swipe fees on credit and debit cards go up as they just recently did, it increases inflation, and consumers ultimately pay the price.” His opening statements and questions were followed by lawmakers from both sides of the aisle who voiced concern about the broken market in which swipe fees are set.
Kantor testified that since swipe fees are a percentage of the cost of every transaction, when gas prices rise or the cost of goods rises due to inflation, these fees multiply for retailers. In 2021, overall card fees paid by the conve- nience store industry were $13.5 billion, up 25.6% in 2021 versus 2020 ($10.7 billion), NACS State of the Industry data indicate. The first two quarters of 2022 have seen even steeper increases.
“This is an incredibly concentrated market, and none of [the banks] are setting their own prices. That doesn’t make any sense,” stated Kantor. “On top of that, Visa and Mastercard set the terms by which cards are accepted, which make sure to insulate those fees from any other competitive market pressure to make sure they can stay high.”
Bill Sheedy, senior adviser to Visa’s CEO, testified that there is plenty of competition in the payments space, citing tech-based entrants, such as PayPal/Venmo, Square/Block, Affirm, Afterpay, Klarna and Zelle. Kantor was quick to respond that these forms of payments cannot be compared because this hearing was on credit cards, and Visa and Mastercard dominate more than 80% of the market.
FEES FUND CARD REWARDS
The Visa and Mastercard executives defended the “value” credit cards bring to both merchants and consumers in the form of rewards. When asked what the interchange fees pay for, Charles Kim, CFO of Commerce Bancshares Inc., said that “roughly 60% goes out in the form of rewards.”
The Hispanic Leadership Fund released a study the day before the hearing that found that the current swipe- fee structure drives up shelf prices for all Americans, regardless of how you pay. This hurts low income Americans the most. It found that American families earning less than $75,000 per year send a total of $3.5 billion to families earning more than $75,000 per year.
Sen. Mike Lee (R-UT) questioned the system’s brokenness: “Couldn’t one argue that this is a manifestation of a lack of competition and that the price is being inflated by the lack of competition, and that consumer rewards share in the monopoly in order to inflate demand and squeeze merchants?”
Giant Eagle CEO Karet shared that her profit margins are between 1% and 2%, compared with 50% at Visa. She noted the April increases will cost her company $1.3 million a year, and given her razor-thin profit margins, she has no choice but to pass the increase along to customers in higher prices.
Committee ranking member Sen. Charles Grassley (R-IA) cited “staggering increases” in prices during the current “time of high inflation” and acknowledged that “fees are eating into already-tight margins, especially for small business owners.”
While most of the country is hurting from inflation at a 40-year high, Kantor pointed out that the credit card industry is profiting from it. He cited recent earnings calls where the chief financial officer of Visa acknowledged, “we are a beneficiary of inflation.” During the hearing, however, witnesses from Visa and Mastercard shied away from the issue of inflation.
Durbin offered several policy solutions to bring relief to Americans, including having two unaffiliated networks on a credit card. This way the dominant card networks would have to compete for a retailer’s business, like what happens on debit cards today.
“We need to deal with the competition problem in credit cards to have a fair deal for merchants and consumers, and frankly for the U.S. economy,” stated Kantor. “When we have competition, prices are lower, we have more innovation, and people have more money in their pockets. They can spend more, and that consumer spending helps drive the economy.”
NACS is working with the Merchants Payments Coalition to pursue legislation that will bring long-needed competition to credit cards. To contact your member of Congress and ask them to #StopSwipeflation visit www.convenience.org/grassroots, or if you’d like to be more involved in this effort, contact Margaret Hardin, NACS grassroots manager.