Consumers could soon see higher prices in some stores, after credit card giants Visa and Mastercard raised “withdrawal fees” – creating an additional cost that some retailers may have to pass on to their customers.
Last month, the two credit card companies combined some of their exchange rates, or the fees merchants pay with each credit or debit card transaction. These so-called “withdrawal fees” are then paid to the card-issuing bank but are largely invisible to the consumer. However, some retailers claim that the additional fees will force them to raise prices or stop accepting certain credit cards altogether.
The Changes to exchange rates – any also It includes some of the cuts, such as some transactions under $5, credit card companies said – that were supposed to go into effect in April 2020, but have been postponed due to the pandemic.
Two years later, retailers say the timing of the increases isn’t much better, citing the worst inflation in 40 years, the ongoing pandemic, disrupted supply chain issues, rising costs and general economic uncertainty.
Additionally, the recent increases are on top of the fees merchants have already paid to credit card companies, said Doug Kantor, general counsel at the National Association of Convenience Stores and a member of the Executive Committee of the Merchants Payment Alliance.
Credit, debit and prepaid cards were used to make $9.4 trillion in purchases last year, According to a Nelson report, a publication covering the payment industry. Of those purchases, merchants paid about $138 billion in processing fees, Nelson reported.
said Kantor, who appreciates the The increases will increase fees by $1.2 billion this year.
But at a time when the number of people is increasing By choosing to use plastic instead of cash, Kantor and others see an even greater risk of increasing these fees: inflation.
exchange Fees are applied through a complex system Where the fees differ Depending on the merchant, transaction size, card type, and banking institution, among other factors.
at recent reportVisa notes that the typical swipe fee for its cards includes a flat fee of about 5 cents to 25 cents and about 1.15% and 3% of the purchase price. For example, if a customer pays $100 using a traditional Visa rewards credit card at a small merchant, the retailer will pay $1.53 — 1.43% plus 10 cents — in fees that will then go to the bank that supports that card.
If fees rise, Cantor said, merchants may have to raise some prices to help offset expenses.
“It really creates this vicious negative cycle: if prices go up a little bit, the fees are going to go up a little bit, and the prices have to go up to account for the higher fees,” he said. In times when inflation is very low, it is not noticeable. But now when inflation is high, it really speeds up the whole cycle.”
In a statement, Visa noted that the fees are not charged directly to consumers, and are not linked to inflation or the price of goods. However, he said, “Like any line item of their business, merchants price their merchandise based on their costs…Any increases in the amount of interchange fees paid from year to year often reflect an increase in merchant transactions or sales revenue.”
Inflation concerns were highlighted earlier this month during a Senate Judiciary Committee hearing on the exchange fee. The he heard headed by Senator Richard Durbin, who was behind a Financial reform 2010 That limited debit card exchange fee.
Retailers Push to Expand Durbin Mods to Credit cards are included, but senators haven’t gone so far as to demand that extension yet. Instead, they floated potential fixes, such as adding interchange fee disclosure to credit card statements.
“US swipe fees are the highest in the industrial world, and the card system is clearly broken,” Leon Buck, vice president of the National Retail Federation, wrote in an email. “This cannot be allowed to continue.”
Visa and Mastercard say the fees have both value and purpose: They help fund rewards programs and banking services, and they help take a significant layer of risk out of the equation for merchants by ensuring payment regardless of whether a customer is paying their credit card bill or in cases of fraud.
Banks are absorbing these costs, which will be higher than the fees merchants pay, Linda Kirkpatrick, President of Mastercard in North America, said during the Senate hearing.
“Retailers are trying to have this discussion around just price in isolation,” said Jeff Tassi, chairman of the Electronic Payments Coalition. “And that’s ridiculous, just as trying to discuss their earnings in isolation from value is also ridiculous.”
In her testimony before the Senate Committee, Kirkpatrick He highlighted that value in the context of the past two years.
“Electronic payments have kept commerce alive for consumers and small businesses during the pandemic,” she said. “Indeed, our products have been used by the US government to quickly provide much-needed assistance to vulnerable Americans.”
If the Durbin adjustment is extended to credit cards, Ted Rossman, senior industry analyst at CreditCards.com, said he expects bonuses to be reduced. But he said the prices that merchants charge consumers may not eventually go down.
“Retailers say they will lower prices if they pay lower card processing fees, but there is no evidence that they did after the Durbin adjustment, and I highly doubt they will now,” Rossman said.
If the fees are not processed, Rossman said, some companies may try to respond by handling additional fees or not accepting credit cards, which could then turn away customers, particularly in an increasingly digital economy.