How credit card swipe fees are affecting shoppers

Credit card swipe fees, which are among the highest operating costs for retailers, are taking a bite out of household budgets, according to industry experts. 

When a credit or debit card is used, banks and credit card networks will charge retailers a fee to process the transaction. It's known in the industry as an interchange fee, though some experts have also coined it a "swipe fee." 

Swipe fees average just more than 2% of the transaction for credit cards, but they can be as much as 4% for some premium rewards cards, according to the National Retail Federation (NRF), the nation's largest retail trade group. 

For debit cards, fees from the nation’s largest banks are capped by the Federal Reserve at 21 cents per transaction plus 1 cent for fraud prevention and 0.05% of the transaction for fraud loss recovery, but cards from small banks are exempt. 

RETAIL TRADE GROUP URGES PASSAGE OF BILL THAT WOULD REDUCE CREDIT CARD 'SWIPE FEES': HERE'S WHY

All told, these fees cost retailers more than $170 billion a year. That's up from 2001 when fees were about $20 billion a year, according to the NRF. 

But they aren't absorbed by the retailers. Instead, they are "built into the price of virtually everything we buy," Doug Kantor, member of the Merchants Payments Coalition Executive Committee, told FOX Business. Today, households are taking on more than $1,100 per year because of these fees. 

Kantor said these fees are a huge hit to buying power. Given that they "are a percentage of the amount you spend, we've seen it really explode in the face of higher inflation," Kantor, who also serves as general counsel at the National Association of Convenience Stores, said. 

According to Dylan Jeon, senior director of government relations at the NRF, the increased use of credit cards has driven up the total amount of fees charged. Another key factor, Jeon added, is that Visa and Mastercard control about 80% of the credit card market.

SMALL BUSINESSES DESERVE RELIEF FROM SOARING CREDIT CARD SWIPE FEES

"What that market leverage has allowed them to do is basically raise fees or implement new fees really at their own discretion," Jeon said. "There's really no competitive pushback. There's no reason for them to work with retailers or other merchants to find more common-sense fees and fee structures because, again, they're the two biggest and main players in town." 

That "gives them free rein to sort of implement practices that raises their revenue and really leaves no recourse for retailers and other merchants," he added. 

Jeon said bigger retailers have more flexibility when it comes to how much of the cost they can absord. "But when you're talking about a… mom and pop, those margins are razor-thin. And this is one area where they do not have any real negotiating power," he said. 

Kantor said retailer profit margins are 3% on average. 

Nick Simpson of the Electronic Payments Coalition, told FOX Business that all payments have costs and that "credit card processing costs are among the lowest – even lower than cash."

The EPC published a report in October citing data from Javelin Strategy & Research showing that the average credit interchange rate in the U.S. has held steady at 1.8% since 2017. Meanwhile, the average debit interchange rate fell to 0.73% from 2014 to 2022, according to the Federal Reserve. 

According to Simpson, card processing costs provide benefits to businesses in the form of things such as fewer bounced checks, faster payments and less fraud. For customers, these fees help provide fraud protection, security and rewards. 

LendingTree chief credit analyst Matt Schultz said there is no indication that if these fees went away the costs of goods would decrease. When the federal government capped fees for debit cards, for instance, "we saw debit card rewards largely go away overnight. But what we didn't really see was prices go down," Schultz said. 

Still, the issue reached Washington late last year. In November, members of the Senate Judiciary Committee lambasted Visa and Mastercard executives for high credit card swipe fees. 

The NRF is pushing for the passage of the proposed Credit Card Competition Act, which it says would end the Visa and Mastercard monopoly by requiring cards from the nation’s largest banks to be routed over at least one competing network like NYCE, Star or Shazam in addition to Visa or Mastercard’s networks. 

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Kantor previously argued that the Credit Card Competition Act would introduce market competition by creating incentives for innovation in price and service that would benefit consumers and the economy alike. 

Visa told FOX Business that it is constantly enhancing its network to better serve the businesses and consumers that rely on the company. 

"Everything we do is designed to make paying and being paid with Visa more convenient, secure and reliable," Visa said. 

Mastercard deferred comment to the Electronic Payments Coalition.