Members of Congress join the call to stop credit card swipe fee increases

After a two-year delay, Visa and Mastercard are planning increases on interchange and digital enablement fees charged to retailers.

woman holding black smartphone near silver macbook

Credit card companies take a fee for each transaction (Photo by Pickawood on Unsplash)

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.”

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.

Subscribe to The Current Newsletter

Trending in Economy

Shopper Experience

5 shopping technologies that Gen Z'ers will still be using at 40

Consumers believe virtual try-on, in-store robots and cashless payments are poised for growth, according to Klarna.

a woman looking at herself in glasses
eyebobs' virtual try-on allows shoppers a closer look. (Courtesy photo)

What will retail look like in 2041?

That was the question posed by Klarna as it set out to consider the future of retail. Teaming up with Kate Hardcastle (aka The Customer Whisperer), the payments and shopping service set out to identify the key tech advances that will change shopping.

Keep reading...Show less

Latest from Economy