As the Federal Reserve raises interest rates, Americans are desperately awaiting financial relief they can feel in their pocketbooks. Everyday costs are still sky high. From groceries to gas prices, it feels like inflation is here to stay. Making these expenses even worse are credit card swipe fees, which take an average of 1.5-3.5 percent off the top of every transaction total.
While initially charged to merchants, these fees take a major toll on small businesses and companies with slim profit margins, forcing them to pass the added cost onto their customers through higher priced goods and services. Estimates show the average household pays more than $1,000 annually thanks to inflated costs due to excessive swipe fees.
Fortunately, a solution to lower these fees already exists via the Credit Card Competition Act (CCCA) introduced by Sens. Roger Marshall (R-KS) and Dick Durbin (D-IL). If passed, this legislation would take aim at the market failure that has allowed major credit card companies like Visa and Mastercard to consolidate 80 percent of the market share and raise fees indiscriminately. It would also rule out foreign payment networks that pose a security threat to our national security.
Despite advances in technology making it easier and safer to process transactions, credit card swipe fees continue to increase on a set schedule. Visa and Mastercard levy and raise fees that major banks collect, refusing to compete with each other on price. As a result, banks offer merchants a single routing option to process their credit card transactions, forcing them to pay excessive fees.
And since banks implement swipe fees without question, merchants have no ability to negotiate with major credit card companies that set these fees in the first place.
With 36 percent of consumers now using a virtual or physical credit card as their primary payment method, and just 9 percent preferring cash, business owners have no choice but to accept credit cards. Visa and Mastercard count on this reality. Last year alone, merchants paid over $126 billion in credit card swipe fees, more than a 20 percent increase from the year before.
Meanwhile, this credit card duopoly continues to take in high profits with these rising fees. Visa’s net profit margin was over 50 percent last year while Mastercard hit almost 45 percent. Merchants that take the cards average profits of around 2.5 percent.
It’s critical for Sens. Josh Hawley and Eric Schmitt (R-MO) to support the CCCA. Passing this legislation would ensure merchants are offered a second network when routing credit card transactions, preventing major players like Visa and Mastercard from boxing out their competitors. With new competition in the payments marketplace, smaller networks could provide similar processing services at a lower cost.
Not only would this bill help bring down costs for American business owners and consumers, who pay the highest swipe fees in the industrialized world, but free market competition would drive innovation and better security standards as we’ve seen in similar industries.
Security is also a concern. Companies like China UnionPay were welcomed by Visa and Mastercard onto security standard councils like EMVCo and PCI, making our payments system vulnerable to foreign influence. These organizations help to set operational and security standards for the entire payments industry, and despite the national security threat posed by China, the U.S. is allowing a Chinese state-owned financial services corporation to hold governing positions in those processes. The CCCA would put an end to this by blocking foreign state-owned networks and those that pose a security risk, like China UnionPay.
Inflation and high prices won’t go away overnight, but that doesn’t mean our lawmakers shouldn’t work to pass bipartisan legislation that will help reduce costs for businesses and consumers. Senator Hawley sits on the Senate Judiciary and Small Business Committees and Sen. Eric Schmitt’s experience as attorney general provides both with firsthand insight into the impact a monopolized marketplace can have on small businesses just trying to stay afloat. I hope they’ll keep up the fight for small business owners and work to pass the CCCA to help lower the costs for all Missourians in the Show-Me State.
Jim Kalberloh is the Missouri State Representative for District 126.
