Swipe Fees

Last Updated: September 27, 2022

The Issue

The shift from Americans using cash to credit and debit cards was accelerated by the COVID-19 pandemic, and this shift comes at a real cost to main street businesses.  Every time a payment card is used, fees are charged to the retailer and those fees have been rising at a dramatic rate for a generation. This issue is exacerbated during inflationary times. Because credit card fees are a percentage of the total transaction cost, they multiply with every cent of inflation. That is because there is no competition in the credit card market.

The two global card networks, Visa and Mastercard, control about 80% of the credit card volume in the United States.  Retailers have no choice but to accept these cards, meaning they are stuck with whichever network is on the card.  Visa and Mastercard set the prices and terms for the thousands of banks that issue their cards – even though the biggest fees, swipe fees, go to the bank that issued the card. Banks should compete on their swipe fee prices, but they don’t. This results in swipe fees increasing year after year and U.S. merchants and consumers paying more in such fees than the rest of the world. The market is clearly broken.

Retail Impact

The convenience store industry has more than 148,000 convenience stores nationwide, 60 percent of which are single-store operators. These businesses have seen a historic jump in their swipe fees with inflation and rising gas prices. In 2021, overall card fees paid by the convenience store industry were $13.5 billion, up 25.6% in 2021 versus 2020 ($10.7 billion). For many convenience retailers, the swipe fees they pay exceed their pre-tax profits. These fees represent their second-highest operating cost – less than labor but more than rent and utilities.  On Visa and Mastercard credit transactions, the average rate paid in the United States was 2.25% of the transaction amount – more than 7 times what merchants pay in Europe and 5 times what merchants pay in China.

The Credit Card Competition Act

The Credit Card Competition Act, bipartisan, bicameral legislation introduced by Senators Roger Marshall (R-KS) and Dick Durbin (D-IL) in the Senate (S. 4674), and Congressmen Lance Gooden (R-TX-5) and Peter Welch (D-VT-AL) in the House (H.R. 8874), would bring long-overdue competition to the credit card marketplace by creating a choice for the processing of credit card purchases. It would require the largest U.S. banks that issue Visa or Mastercard credit cards to allow transactions to be processed over at least two unaffiliated card payment networks – the same process that has been used for debit card transactions for more than a decade. CMSPI, a payment consulting firm, estimates that credit card competition would save American consumers and businesses more than $11 billion per year.

NACS Position

NACS supports this legislation because main street businesses like convenience stores thrive on competition, and the card networks should too. Congress must pass this bill and bring competition to credit cards through market-based reforms.

Q&A on Credit Card Surcharging

Beginning January 27, 2013, retailers can add fees to try to recover the outrageous swipe fees they pay for credit card transactions. However, there are very difficult hurdles to overcome related to actual implementation and consumer misperceptions, making it unlikely that many retailers will be surcharging any time soon. Read more >