Hefty credit card processing fees are an unfortunate fact of life for most retailers, but that could change if new legislation gets pushed through.
In June, a bipartisan group of lawmakers introduced a bill, The Credit Card Competition Act, that seeks more competition in the credit card processing industry which is currently dominated by Visa and MasterCard. Proponents of the bill point out that last year alone swipe fees increased by 25%, costing U.S. retailers nearly $38 billion, according to the Merchants Payment Coalition.
With Visa and MasterCard representing at least 80% of the credit card market, they basically set which swipe fees are charged by the banks. These fees are generally a percentage of the sale, plus a cash amount, such as 2.25% plus $0.20 per transaction. This fee is charged to the retailer. The banks say that they use the money to cover services such as security and fraud protection.
However, these fees can take a relatively big bite out of retailers profit, especially smaller retailers.
The legislation introduced this summer hopes to rectify the situation by introducing more competition into the market by forcing banks to allow more processors into their networks.
Opponents claim that it would result in fewer credit card issuers, which would drive up prices for consumers and impact the security of the network. They also claim that credit card rewards would be reduced, since some funding of these rewards come from swipe fees.
Here at Blacks, we will keep an eye on this legislation to see where it is heading. There is the possibility that we could have lower swipe fees in the future, especially given that countries like Canada and the UK have already grappled with this issue.
“Ultimately, these fees are passed on to the consumer in the form of higher prices charged by merchants,” says Blacks President Steve Pruitt. “Lowering them could benefit both our retailers and their customers, but it may take some time.”
In the meantime, bigger e-commerce players can get around high swipe fees by offering their own branded debit and credit cards through a new startup service called Tandym. They claim a 40% increase in average transaction values when using their rewards-like system, which is based on an alternative network.
In the end, it may be innovation that brings the biggest changes to credit card processing, rather than legislation.