The first official shots have been fired in the war between major banks and electronic payments companies and merchants over how much retailers should pay for customers to use their credit cards and if those fees trickle down to consumers.
Disagreements between the two factions aren’t new, but it’s now at a fever pitch after Senator Dick Durbin (D-IL) and Senator Roger Marshall (R-KS) introduced late last month the Credit Card Competition Act of 2022.
The proposal aims to give Visa and Mastercard, the two largest payment processors respectively, more competition. Mastercard and Visa account for about 83% of general-purpose credit cards, which the senators say essentially allows them to act as a duopoly and set the rates merchants pay them to process credit cards.
Consumers ultimately pay for all these fees in the price of the goods and services they buy, the senators argue. And in an era of 40-year high inflation, this is especially taking its toll on both consumers and merchants, they said.
What are interchange fees and who pays those credit card processing fees?
Every time you use your credit card to make a purchase, the merchant (brick-and-mortar or online) must pay a behind-the-scenes interchange fee to process that payment. Most of that fee goes to the bank issuing the card, but companies like Visa and Mastercard also receive a smaller fee for processing the payment through their networks.
Fees are charged as a percentage of the total sales amount in each transaction, but the percentage charged to each merchant varies. On average, though, fees run about 2%.
Factors that contribute to determining what percentage the merchant is charged include the type of merchant (department store, convenience store, gas station, for example), type of payments technology the merchant has, whether the purchase is made online or in person, or the type of card.
Sen. Dick Durbin
How does the consumer end up paying the fees?
Though the fee percentage doesn’t sound high, it adds up quickly, merchants say. Last year, Visa and Mastercard charged $77.48 billion in fees on about $3.49 trillion in credit card transactions, the senators said.
“The cost of credit card fees is our number three cost of doing business behind payroll and rent,” Patti Riordan, owner of Smoke Stack Hobby Shop in Lancaster, Ohio, said.
To mitigate that, merchants raise prices, especially now as high inflation eats into their margins, Bob Jones, owner of pool and patio product retailer American Sale in the Chicago area, said.
“Retailers profit margins are about 2% to 2.5% which is about what the fee rate is too,” Doug Kantor, National Association of Convenience Stores general counsel, said. “So, retailers have no choice but to pass on the cost.”
That means all customers – whether they use a credit card or not – end up paying the price.
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Why are interchange fees so high?
It depends on whom you ask.
The senators and merchants claim it’s corporate greed, but Visa and Mastercard say it’s the cost of keeping consumers and …….
Source: https://sports.yahoo.com/much-credit-card-processing-fees-145040315.html