Inflation continues to wreak havoc on American pocketbooks and, for Missourians, this means record-high gas prices we haven’t seen since 2008. Missouri has traditionally had some of the lowest gas prices in the country, but with supply chains lagging and product demand high, seemingly no one can escape the thralls of rising prices.
While there’s no miracle fix for inflation, addressing rising credit card swipe fees could hold the key to bringing some financial relief to struggling Americans. Fortunately, some members of Congress have kept a close eye on the issue, including those on the Senate Judiciary Committee, who recently held a hearing on excessive swipe fees. Missourians are counting on Sen. Roy Blunt and Senate Judiciary member Josh Hawley to work with their colleagues to promote competition in the payments marketplace, which will help bring down the cost of these fees and therefore prices for consumers.
Last year, major credit card companies collected over $137 billion in swipe fees from merchants. Of that total, Visa and Mastercard earned an astounding $77 billion from their cards. This duopoly over the industry is plain to see given both companies hold more than 70 percent of the market share, allowing them to dictate when and by how much swipe fees are raised.
Their latest increase was in April after Congress sent a letter warning Visa and Mastercard executives warning them that their actions would inflict an undue burden on Americans already battling growing prices. Unfortunately, they did not heed this warning and instituted a swipe fee increase that will cost businesses and consumers an additional $1.2 billion.
Most swipe fees average between 1.5 to 3.5 percent, with some as high as 4 percent. Many retailers and small businesses with slim profit margins can’t afford to absorb current swipe fees, let alone the latest additions. As a result, American consumers are often left with the bulk of the burden through higher prices enacted to keep profit margins in the green.
Every time a credit card is used, the merchant incurs a swipe fee that is taken as a percentage of the purchase transaction total. This means swipe fees act as a market multiplier for inflation, as rising prices lead to greater profits for credit card companies and issuing banks. Those at Visa said it themselves in one of their recent quarterly earnings calls, noting they’re a “beneficiary of inflation” and that it’s a positive for them.
While Visa and Mastercard celebrate windfall profits, 93 percent of Americans now view inflation as a “very” or “moderately big problem.”
Given these growing financial concerns, consumers would be surprised to learn that a large portion of their swipe fees are actually used by major credit card companies to offer premium and luxury credit card rewards. These credit card perks are meant to entice new cardholders, but they matter very little for Missourians feeling the brunt of inflationary pressures. In fact, as of 2019, almost one in four Missourians were “unbanked” or “underbanked,” which means many people are paying higher prices at the cash register to subsidize the premium rewards they can’t even take advantage of.
So long as Visa and Mastercard continue to go unchallenged in an anti-competitive market, they will wield indiscriminate power over swipe fees that can be raised to their liking to pad their own pockets. Hopefully, Congress will seize the opportunity on the heels of the recent Senate Judiciary Committee hearing to put forth solutions that bring competition to this broken system. Americans in the Show-Me state are counting on Sens. Blunt and Hawley to show them lower prices by fighting for competition in the payments marketplace to finally provide some relief from sky high inflation and unfair swipe fees.
Representative Craig Fishel, a Republican, represents the southeast portion of Springfield and Greene County (District 136) in the Missouri House of Representatives. He was elected to his first two-year term in November 2018.