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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.
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Consumers believe virtual try-on, in-store robots and cashless payments are poised for growth, according to Klarna.
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.
To do so, they asked 5,000 customers in five countries about how they believe their shopping habits will change in 18 years. By that time, Gen Z will be 40 and joining millennials as the top consumer groups.
The Future of Retail report findings indicate that consumers believe many of the emerging technologies that are only beginning to find a foothold in commerce today will become more widely used. Interestingly, the shoppers surveyed do not believe brick-and-mortar retail will disappear. While they believe virtual try-on will become more common, consumers also open to in-store robots providing help navigating the store. The post-pandemic period taught us that in-store shopping remains popular, but this survey provides an indication that the experience will need to continue to evolve to meet consumer expectations.
“Technologies like augmented reality have the potential to transform rundown physical shops and revamp the in-store experience for shoppers," said Hardcastle, in a statement. "Klarna's latest research shows that consumers want greater convenience and a more personalised shopping experience – and seamless technology must be at the heart of this."
Here’s a look at five technologies that are set to grow in retail, according to the survey:
According to the survey, 65% of consumers want the shopping experience to become more personalized in the future, and 36% expressed certainty that their wishes will come true, noting that this will occur across both in-store and online.
Klarna noted that this future is already on view in China. In that country, 80% of online purchases are already driven by personalized recommendations. That's compared with 20% in the western world. The survey findings indicate Western consumers want an experience that is more like that in China, at least when it comes to recommendations.
The way we try on clothes may be in for a big change. About half of the consumers surveyed believe they will try on clothes in the same way as today. So what will replace the dressing room? The survey states that 48% want to use virtual dressing rooms, 28% want to use augmented reality and 23% believe they will rely on AI to provide recommendations on the clothes that match their fit and style.
Shopping assistants (including robots)
The in-store experience is also set for transformation when it comes to assistance, the survey found. The survey found that 59% of shoppers are open to the idea of a robot approaching them in-store, and another 18% will consider it depending on how the robot looks, or behaves. They could take measurements, or recommend styles.
Meanwhile, there’s also interest in accessing more advice with online shopping. The survey found that 34% of shoppers want access to virtual “personal shoppers” online. These assistants would provide recommendations based on a consumer’s taste and style.
Augmented and virtual reality
Augmented reality, which describes experiences that superimpose digital imagery onto physical environments, is set to gain use across shopping settings in the coming years, shoppers believe. The survey found that 81% of respondents believe this technology will enhance their in-store shopping experience, while 37% think the technology will eventually become standard across online retail.
But despite today's talk of the metaverse, consumers still see a limit to these technologies. The survey found that 43% of Gen Z'ers (43%) believe that shopping in virtual reality (VR) will come to overtake the real-life shopping experience within the next two decades.
Retailers are already offering a growing number of payment options as more consumers pay with their phone. In the future, consumers think the push beyond hard currency will continue. The survey found that 64% of Gen Z and millennials agree that the majority of physical stores will be completely cash-free within 18 years. Further, 31% believe that the shift will occur in five years or less.
What does ChatGPT think?
Klarna asked AI-powered chatbot ChatGPT about its own predictions. Here’s the response:
“The biggest change for consumers when they shop in 2041 will likely be the widespread use of augmented reality (AR) and virtual reality (VR) technologies, allowing them to virtually try on products and experience them before making a purchase. Additionally, personalized recommendations based on their past behavior and preferences will become even more accurate and prevalent, making shopping experiences more efficient and tailored to individual needs.”
It sounds like following the survey results will put brands and retailers on the right track.