Swipe fees go down for small businesses. Or are you? | source of payment

A concession on interchange rates has done little to calm a trade lobby group hoping lawmakers will block Visa and Mastercard from changing their fees in April.

The card networks plan to introduce a long-delayed increase in certain swipe fees next month, but agreed to lower fees 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 cope with credit card conversion rates, which eat away at profits as inflation rises. Due to the pandemic, Visa and Mastercard have already postponed the long-planned interest rate hikes by a year.

A coalition of financial institutions and card networks defending the interchange increases are now pointing to significantly higher fees that merchants routinely pay as premiums Buy now/pay later Fintechs as evidence that exchange rates are reasonable.

Back and forth

The latest skirmish between merchants and card networks over the cost of accepting cards began last week when the Merchants Payments Coalition announced on March 2 started airing ads called on lawmakers to block Visa and Mastercard from allowing the rate hike to go into effect as planned.

On the same day, Visa said in a blog entry that it would lower key consumer credit card interchange rates in stores and online for US small businesses as part of April’s interchange overhaul. The change will reduce consumer credit card exchange fees by 10% for 90% of U.S. businesses, Visa said.

Mastercard plans to lower credit card conversion rates on purchases under $5 to help small businesses, which have a higher proportion of small-ticket purchases. Mastercard also said it is reducing card acceptance costs for hotels, rental car companies, casual dining restaurants and daycares, but the card network has not disclosed its specific pricing.

The card networks plan to change exchange rates in April, lowering some small business fees and raising others.


The Electronic Payments Coalition, a Washington-based lobby organization representing credit unions, community banks, payment companies and other organizations, welcomed the card networks’ plans to reduce swipe fees for small businesses.

“These announcements reflect the electronic payments 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 merchant group is not enthusiastic about the new transfer cuts. In Visa’s case, the cuts would only apply to merchants with annual Visa consumer credit card volumes of $250,000 or less and would be insignificant for the retail industry as a whole, the MPC said.

“This is a very limited change that will affect a very small group of retailers, the smallest of the small,” said Leon Buck, MPC board member and National Retail Federation vice president for government relations, banking and financial services. said in a written statement.

Merchants whose Visa credit card purchases are under $250,000 would likely be certain convenience stores, according to Doug Kantor, general counsel of the National Association of Convenience Stores.

“That’s less than the average credit card spend of a single convenience store, and these businesses would have to make their choice [through Visa] to qualify,” Kantor said in a written statement.

Visa confirmed that the rate cut applies only to companies with less than $250,000 in annual Visa credit card revenue and declined to comment on next month’s planned increase in overall credit card exchange rates.

The Merchants Payments Coalition is now asking Congress to investigate Visa and Mastercard for anti-competitive activities in the US credit and debit card markets and is urging action amid rising inflation.

rising costs

The one-year delay in Visa and Mastercard’s new exchange rates was already a concession to members of the retail industry whose sales either fell or shifted online during the pandemic. The lag has brought another variable into play: inflation.

The MPC has asked lawmakers to form a committee to investigate why card networks are now increasing swipe fee rates, citing President Biden’s call during the State of the Union address to fight inflation increasing competition.

Visa and Mastercard swipe fees currently average 2.22% of the purchase price and will total $61.6 billion in 2020, up 127% over the past decade, the MPC said in its press release.

Inflation drives up the amount card networks collect on each transaction as prices rise. So if a $100 item went up to $107 based on 7% inflation, the swipe fee for that transaction would go from $2.22 to $2.38, according to Merchant Coalition. dollars rise.

For mainstream retailers, the fee increases that Visa and Mastercard will introduce next month will reduce the cost a mainstream retailer pays to accept a $100 transaction using a traditional Visa credit card from about $1.90 Dollars increase to around $1.99, which the MPC estimates will increase The total swipe fees paid by merchants is $1.2 billion.

The Electronic Payments Coalition denies the merchant group’s claims, insisting that the full amount retailers pay to accept payments in the US “compares favorably with global credit card exchange rates.” The organization cites data that suggests the merchant rebate rate — the total fee merchants pay to process payments including interchange — was 2.17% for U.S. credit cards in 2020, versus 1.96% for similar global markets without government controls .

The Payment Industry Coalition points out that in the booming buy-it-now/pay-later industry, retailers are reportedly paying fees of 2% to 8% to installment lenders to offer their services at the point of sale.

“BNPL fees are much higher than interbank fees, but retailers and merchants are not asking Congress to lower BNPL fees,” Smith, the EPC spokesman, said via email.

According to Smith, the retailers also failed to document how they lowered the prices of goods following the implementation of the 2010 Durbin Amendment to the Dodd-Frank Act, which limited exchanges of debit card transactions.

“Why do big retailers need another government handout when they’re already making record profits?” asked Smith.

The Federal Reserve proposed exploration last year new debit routing rules to ensure exchange rates are still fair following the surge in e-commerce and digital transactions caused by the pandemic. The proposal has not progressed further.

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