A concession on interchange rates has done little to appease a merchant lobbying group that is hoping lawmakers will prevent Visa and Mastercard from changing their fees in April.
The card networks are planning to implement a long-delayed increase in certain swipe fees next month, but they agreed to cut rates on some transactions for small businesses and the travel and day care industries.
The Merchants Payments Coalition says the targeted cuts are small potatoes and won’t help the vast majority of retailers coping with credit card interchange rates that are cutting into profits as inflation soars. Visa and Mastercard already postponed the long-planned interchange rate hikes by a year because of the pandemic.
A coalition of financial institutions and card networks defending the interchange increases now points to significantly higher fees merchants routinely pay as bounties to
Back and forth
The latest skirmish between merchants and card networks over card-acceptance costs began last week when the Merchants Payments Coalition on March 2
That same day, Visa said in a
Mastercard plans to lower credit card interchange rates on purchases of less than $5 to benefit small businesses, which have a higher proportion of small-ticket purchases. Mastercard also said it’s lowering card acceptance costs for hotels, rental car companies, casual-dining restaurants and day care facilities, but the card network did not disclose its specific pricing.
The Electronic Payments Coalition, a Washington-based lobbying organization that represents credit unions, community banks, payment companies and other organizations, applauded the card networks’ plans to cut swipe fees for small businesses.
“These announcements reflect the electronic payment industry’s continued mission to support small business owners and the communities they serve as our nation recovers from the pandemic,” Jeff Tassey, EPC chairman, said in a written statement.
The merchants’ group is not wowed by the new interchange cuts. In the case of Visa, its cuts would apply only to merchants with $250,000 or less in annual Visa consumer credit card volumes, and will be insignificant for the retail industry as a whole, according to the MPC.
“This is a very narrow change that will affect a very small group of retailers, the smallest of the small,” Leon Buck, a member of the MPC's executive committee and the National Retail Federation’s vice president for governmental relations, banking and financial services, said in a written statement.
Merchants whose Visa credit card purchases are under $250,000 would likely be certain mom-and-pop stores, according to Doug Kantor, general counsel for the National Association of Convenience Stores.
“That’s less than the average single convenience store has in credit card spending, and those businesses would have to opt in [through Visa] to qualify,” Kantor said in a written statement.
Visa confirmed that the rate cut applies only to businesses with under $250,000 in annual Visa credit card receipts, and declined to comment on the planned increase in overall credit card interchange rates next month.
The Merchants Payments Coalition is now calling on Congress to investigate Visa and Mastercard for anticompetitive activity in the U.S. credit and debit card markets, pressing for action in light of rising inflation.
Rising costs
The yearlong delay in Visa and Mastercards' new interchange rates was already a concession to members of the retail industry that saw their sales either fall or shift online during the pandemic. The delay has brought another variable into play: inflation.
The MPC has asked lawmakers to form a committee to investigate why the card networks are increasing swipe-fee rates now, citing President Biden’s call during the State of the Union address to fight inflation by
Swipe fees for Visa and Mastercard currently average 2.22% of the purchase price, amounting to $61.6 billion in 2020, up 127% over the previous decade, the MPC said in its release.
Inflation drives up the amount the card networks collect on each transaction as prices rise, so if a $100 item increases to $107 based on 7% inflation, the swipe fee on that transaction would rise from $2.22 to $2.38, according to the merchant coalition.
For mainstream retailers, the swipe-fee increases Visa and Mastercard are set to introduce next month will raise the cost a mainstream retailer pays to accept a $100 transaction using a traditional Visa credit card to about $1.99 from about $1.90, which the MPC estimates will boost the total swipe fees merchants pay by $1.2 billion.
The Electronic Payments Coalition disputes the merchant group’s claims, insisting the full amount retailers pay to accept payments in the U.S. “compares favorably” to global credit card interchange rates. The organization cites data suggesting that the merchant discount rate — the total fee merchants pay for payment processing, inclusive of interchange — for U.S. credit cards was 2.17% in 2020, versus 1.96% for similar global markets with no government controls.
The payments industry coalition points out that retailers in the booming buy now/pay later industry reportedly pay fees of 2% to 8% to installment lenders to offer their services at the point of sale.
“BNPL fees are much higher than interchange fees, yet retailers and merchants aren’t calling on Congress to lower BNPL fees,” Smith, the EPC spokesperson, said by email.
Retailers have also failed to document how they lowered prices on merchandise following implementation of the Durbin amendment to the 2010 Dodd-Frank Act, which capped interchange on debit card transactions, according to Smith.
“Why do big-box retailers need another government handout when they are already making record profits?” Smith asked.
The Federal Reserve last year proposed exploration of
