Just one year ago, Congress took long-overdue action to reform out-of-control debit card swipe fees charged to businesses every time a customer uses a debit card. The action was a step in the right direction and a big win for small businesses and consumers. But it was just a first step. We ought to look at credit card swipe fees, too.
I first got involved with this issue almost five years ago because I kept hearing from Vermont country stores and small businesses about excessive swipe fees they are forced to pay just to accept debit and credit cards. In many cases, they told me they were losing money on some transactions because of these fees. So I dug into the issue.
What I found was astonishing. I never realized just how little merchants could do to change swipe fees or their terms of card acceptance. The dominant credit card companies, which together control 80 percent of the market, set the fees charged by the banks that issue their cards. The merchants can't negotiate. They have no choice but to accept the fees or refuse customers paying with plastic. From a business perspective, that's really no choice at all.
Kathy Miller, owner of the Elmore Store in Elmore, Vt., came to Washington, D.C., to testify before the House Financial Services Committee on legislation I introduced. One of Kathy's primary frustrations was that her customers had no idea how much it cost her when they used a card to pay at her country store. There was little she could do to inform them of those costs or encourage them to use a different form of payment.
On average, swipe fees total about 2 to 3 percent of any purchase - the same or higher than the profit margins in many retail industries. Handing over these fees to the banks and credit card companies makes it difficult for local retailers to keep their prices down or put money back into their businesses.
And there is no justification for the fees to be this high. According to the Federal Reserve, the cost of processing a non-cash transaction is, on average, 4 cents. Yet, the fees paid by American businesses are the highest in the industrialized world. And they keep going up despite improvements in technology that make non-cash transactions more efficient.
A year ago we made progress when we successfully implemented rules to crack down on debit card swipe fees. But there's more work to do. Credit card companies still remain largely unregulated and able to set credit card swipe fees as they see fit. The big banks and credit card companies continue to wield their monopoly power, rigging the system to exploit small businesses and consumers.
One way they do that is by making things too confusing for most Main Street businesses to understand. Small-business owners often don't know what they are paying or why they are paying it. The bank statement a local retailer receives at the end of the month has so many different rates and fees that it may as well be in a different language. For example, Visa has more than 70 swipe fee categories. MasterCard has more than 240 different rates.