Swipe Fees Draw More Notice

As more customers pay by credit card, some small businesses charge extra for their use.

August 23, 2021

Lady Swiping Credit Card

ALEXANDRIA, Va.—Consumers favored credit and debit cards over cash during the pandemic, saddling convenience stores and other businesses with swipe fees that weigh on operating profits. Now, small businesses are increasingly trying to recoup costs by charging customers fees when they pay with a credit card, the Wall Street Journal reports.

Credit card swipe fees remain one of the highest operating costs for convenience store retailers after labor, according to NACS State of the Industry data. Consumer preferences for more touch-free transactions and the coin circulation challenge in summer 2020 led to record debit and credit card usage at convenience stores. In 2020, 74.6% of all transactions were paid by plastic, and overall card fees paid by the convenience store industry were $10.7 billion, NACS SOI data indicate.

Lack of competition in the payments sector has allowed credit card swipe fees to skyrocket, negatively impacting business owners who, to compensate for swipe fees, must increase prices. Banks that issue Visa and Mastercard credit cards charge merchants an average 2.25% of the purchase price to process transactions, according to the Nilson Report, a global news and statistics provider for the payment industry. Multiplied across millions of transactions each day, those fees more than doubled from $25.6 billion a year in 2009 to $67.6 billion in 2019.

When all brands of credit and debit cards are included, processing fees totaled $116.4 billion in 2019, up 88% over the previous decade, according to Nilson. Debit-card swipe fees are limited to 21 cents per transaction for the nation’s largest banks if they follow Visa and Mastercard’s fee schedules, but smaller banks can charge more.

Among the eight million small businesses that accept credit cards in the United States, less then 5% charge fees for credit-card use, the Journal reports, citing estimates from Strawhecker Group. Although small, that percentage was estimated to be 2% or less five years ago. Large retailers tend to pass swipe-fee costs along in the form of higher prices, the Journal notes.

The Journal shared the story of an Ohio ice cream shop, Karen’s Dairy Grove, whose owner decided to start charging credit-card paying customers 25 cents more when they pay for purchases totaling less than $5.

“My business is made on the pennies,” said shop owner Karen Morell, who watched cash sales fall during the pandemic. “If I do everything right I have a small margin,” she said. “On a $5 ice cream, 25 cents is a big chunk of the margin.”

U.S. merchants pay the highest swipe fees in the industrialized world, more than seven times the 0.3% for credit cards and 0.2% for debit cards allowed in Europe.

NACS is part of the Merchants Payments Coalition, which is seeking more competition and transparency in card payments.