Swipe Fees (Interchange)

Last Updated: March 25, 2022

The Issue

Credit card companies and their issuing banks engage in anticompetitive activities by collectively setting the outrageous rates they charge retailers for processing transactions. With the majority of consumers using payment cards, most retailers have no choice but to accept credit and debit cards and must sign a contract that includes anti-competitive terms to reinforce the market dominance of the major credit card brands.

In 2010, debit swipe fee reform, also known as the Durbin Amendment, was signed into law. Debit reform limits price-fixing of debit swipe fees by Visa and MasterCard and injects competition into the debit payments market, which historically had been devoid of it.

Credit card swipe fees, however, continue to increase as there is no competition in the marketplace. Visa and Mastercard control more than 80% of the market and set the fees that the thousands of banks who issue their cards charge retailers. Because there is no downward pressure on these fees, they only increase over time. NACS advocated against Visa and Mastercard’s scheduled swipe fee increases that were slated to take effect in April 2020 and 2021.  Facing pressure from Congress and other stakeholders, the card networks announced they would delay the increases until April 2022.

Retail Impact

Swipe fees are the second highest operating cost for convenience store retailers. In 2020, card fees paid by the industry were $10.7 billion. Prior to reform, the debit payments market was a nonfunctioning marketplace. Visa and MasterCard would centrally fix the fees their banks charge merchants, and the banks would all agree to the same schedules of fees. Visa and MasterCard also signed exclusivity agreements with the largest banks to block smaller networks like Star, Pulse and others from debit cards. This ensured that the Visa and MasterCard networks often were the only networks a retailer could use to route a transaction.

Debit reform gives banks an incentive to compete on debit swipe fee prices.  If they compete, they can charge any amount they want.  If they don’t, then the Federal Reserve limits the amount of swipe fees that the largest banks (those with $10 billion or more in assets) can charge. Reform also prohibits the agreements that block all competitor networks from debit cards. This means there are at least two networks available and merchants get to choose which one they want to use. That way, networks need to compete and merchants have the ability to choose the cheapest and most efficient network for them.

However, with the rise in contactless payments, retailers face new challenges because the major networks are blocking the ability of merchants to choose the network they use on contactless and Internet debit payments, resulting in higher costs to retailers to process those transactions.

NACS Position

The abuses of market power by Visa and MasterCard are detrimental to retailers and consumers alike. NACS, along with a coalition of organizations, is leading the effort to preserve debit swipe fee reform and pursue additional reforms.

NACS urges Congress to protect debit swipe fee reform. Since its implementation, debit reform has resulted in consumer savings of nearly $6 billion per year and supported more than 37,000 jobs per year. Debit swipe fee reform has provided needed relief to the convenience store industry and our customers have seen the savings.
NACS urges federal regulators to investigate how the major networks are blocking a retailer’s routing choice on contactless and Internet debit payments, which is a violation of the Durbin Amendment.

In addition to advocating for congressional and regulatory intervention, NACS was a named plaintiff in a class action lawsuit against the credit card companies and their issuing banks on grounds of antitrust violations. NACS successfully advocated for the courts to reject the inadequate settlement that was reached in that case in 2012 and NACS continues to pursue reform through litigation. A new proposed settlement in that case was filed in September 2018. It only covers monetary compensation and does not limit the relief from Visa’s and MasterCard’s rules that merchants continue to seek in the litigation. NACS members can learn more about that settlement here.

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 >