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An increase in credit card swipe fees charged to retailers by Visa and Mastercard was delayed for two years due to the pandemic. With the hikes now getting set to take effect Friday, April 22, the moves are drawing opposition from members of Congress.
The dispute over fees underscores the presence of the credit card companies in many of the digital transactions that take place between shoppers and merchants across the commerce landscape. Charged as a percentage of a sale, the swipe fees are charged to retailers each time a credit card is used. Alternatively known as interchange fees, they average 2.22% of a transaction for Visa and Mastercard credit cards.
Now, the companies are getting set to enact about $1.2 billion in increases in the swipe fees, the Wall Street Journal reported.
The credit card companies have said the fee restructuring was necessary to cover the costs of innovation and fraud prevention that accompanied rising credit card use over the last two years. But they are a consistent pressure point for merchants, most of whom count the fees as their highest operating cost after labor, according to the National Retail Federation.
The move to increase fees drew a rebuke Friday in the form of a letter from US Sens. Roger Marshall, R-Kansas, and Richard J. Durbin, D-Illinois, and Representatives Beth Van Duyne, R-Texas, and Peter Welch, D-Vermont. After calling for the delays over the last two years due to economic hardship in the pandemic, the legislators this year cited inflation. Many costs associated with the fees are passed on to consumers.
“As Americans are dealing with the highest rate of inflation in decades, your profits are already high enough and any further fee increase is simply taking advantage of vulnerable Americans,” the letter states. “Raising your interchange fee rates even higher will undoubtedly increase the already high costs consumers are facing and add to inflationary pressure, which is the last thing American families deserve right now.”
Further, they wrote they were speaking out because Visa and Mastercard held a “duopoly” that results in a lack of constraints around the fees.
“We note that your companies and your large institutional card-issuing banks were enormously profitable in 2021 even though you refrained from raising interchange fee rates last year,” the members of Congress wrote. “This is not surprising; interchange fee rates are collectively set by your two companies in a way that insulates the rates from normal market pressures, and your fees already significantly exceed the actual cost of processing credit and debit transactions.”
This Friday, Visa & Mastercard plan to increase swipe fee rates that they impose on many American businesses & their customers. Higher swipe fees hurt vulnerable Americans. Read my bipartisan letter urging Visa & Mastercard to call off these fee hikes.https://www.durbin.senate.gov/newsroom/press-releases/durbin-marshall-welch-van-duyne-urge-visa-and-mastercard-to-call-off-planned-swipe-fee-increases-on-vulnerable-american-families-and-businesses\u00a0\u2026— Senator Dick Durbin (@Senator Dick Durbin) 1650294035
The letter was met with support from the National Retail Federation (NRF), whose Vice President for Government Relations, Banking and Financial Services Leon Buck said in a statement that the increase “would only add insult to injury" because credit card companies will already see higher swipe fees this year as a result of higher prices due to inflation. The NRF and Merchants Payments Coalition have called for the fee hikes to be delayed in recent months.
The looming increase comes at a time when Mastercard is also set to double a fee it charges for online purchases. Here’s how Bloomberg News describes that move:
The company’s so-called digital-enablement fee, which it charges on all online transactions, will increase to 0.2% of a purchase price from 0.1%, and Mastercard will charge a minimum of 2 cents per transaction. That means that, for a $50 online purchase, the fee will triple from half a cent to 2 cents.
The fee also will be capped at 20 cents, meaning that for larger online purchases — those over $1,000 — Mastercard will be cutting the amount a merchant pays.
Rising credit card fees have been a point of contention for ecommerce operators. In a high-profile case, Amazon threatened to stop accepting Visa-issued cards in the UK over transaction fees, though the companies ultimately reached a settlement.
The back-and-forth in the US, however, indicates that the global issues surrounding credit card fees are by no means resolved.
Trending in Economy
The platforms are integrating as PayPal makes a push into the headless commerce market.
The news: Checkout provider Bold Commerce and fintech company PayPal announced an integration that will allow brands and retailers to adopt both companies’ services together. PayPal said it’s a move to expand in the headless commerce market, which describes solutions that allow merchants to operate stores without a front-end layer.
How will it work? The companies described the integration this way:
Brands and retailers can use Bold Commerce’s headless checkout suite with the PayPal Commerce platform.
This brings together payments and checkout in a “single pre-integrated solution.”
Merchants can launch sales beyond their own website by integrating checkout in places like blogs, social, and QR codes on packaging.
Through a single service, brands and retailers can accept payment options including PayPal, Venmo and PayPal Pay Later solutions, as well as credit and debit cards.
Key quote from PayPal VP and Global Head of Channel Partnership David Bruce: “Payment choice and flexibility have always been a critical part of a successful commerce experience – but it’s only one part of the equation. Retailers today need to also offer a tailored checkout experience to help drive increased conversion. It’s a powerful combination for a composable checkout to plug into any tech stack.
What it means for ecommerce: The partnership highlights several key trends playing out in the market today:
Headless commerce: In a past generation, retailers built monolithic ecommerce systems with a host of interconnected parts. The cloud and API-driven architecture is ushering in a new paradigm where brands and retailers can separate out different components, and select what best fits their needs. The market is moving toward this, especially in the enterprise segment that long required custom-built systems for scale and category needs. The entrance of PayPal signals that longtime ecommerce platforms are building for this shift. Meanwhile, Bold Commerce itself has 9,000 brands and retailers on its platform, including Vera Bradley, Staples Canada, Pepsi, and Mars. This follows a move by Shopify to launch composable product suite Commerce Components with a focus on checkout earlier in January.
Checkout anywhere: Content brought commerce to platforms beyond ecommerce stores, enabling ads on social platforms and brand placement in posts. More recently, more of that content has become shoppable, allowing users to browse and start a purchase right within a piece of media. A solution like the Bold Commerce and PayPal integration takes another step, embedding the ability to finish a purchase by checking out right inside that content. It shows how ecommerce is becoming more embedded in the experience of the internet, as opposed to existing on specific stores and marketplaces.Fighting cart abandonment: The ability to check out through media is enticing to ecommerce leaders because they want to reduce the touchpoints and time between a person showing interest in an item and completing a sale. Bold Commerce found over half (53%) of consumers abandon checkout before making a buy. This is a long-standing issue, but signals that perhaps there is another technical step being taken. It’s one thing to make checkout easier; It’s another to bring it directly to the point of discovery.