Swipe Fees Need to Be Addressed, Say Merchants

Retailers ask Congress to lower a major business cost as Amazon, Visa strike U.K. deal on payments.

February 18, 2022

Credit Card Swipe

WASHINGTON—The Merchants Payments Coalition (MPC) is asking U.S. officials to address credit card swipe fees once again following the announcement that Amazon has agreed to continue accepting Visa credit cards in the United Kingdom.

Amazon and Visa announced that the companies have reached a “global agreement” under which Amazon will continue accepting Visa credit cards. In addition to taking the cards in the U.K., Amazon will reportedly drop a surcharge that had been imposed on Visa credit card transactions in Singapore and Australia.

“The challenge is even greater in the U.S., where swipe fee rates and the total amount collected are far higher than in the U.K.,” writes MPC in a news release. “U.S. authorities need to look at what has happened between Amazon and Visa in the U.K. and realize that many retailers here feel the same. It’s time to bring about competition that will require the card industry to play under the same rules as other business.”

The average swipe fee charged on Visa credit cards in the U.K. is 0.55% of the transaction amount, or nearly double the maximum 0.3% allowed under European Union rules before Brexit, and totaled $369 million in 2020, according to payments consulting firm CMSPI.

The impact is far greater in the United States, where the market is larger, and cards are more widely used. Swipe fees on U.S. Visa credit card transactions totaled $43.5 billion in 2020, more than 100 times the amount collected in the U.K., according to CMSPI. And Visa’s 2.22% average swipe fee in the United States is four times the U.K. rate.

“The big-picture significance of this dispute is that it has drawn attention to these high fees,” MPC said. “It has shown that even the largest retailers are frustrated, and the situation is even worse for small retailers who don’t have the size and resources of Amazon that are required to stand up to an entity as powerful as Visa.”

At a U.S. House Financial Services Committee hearing yesterday, MPC urged Congress to protect small businesses against rising swipe fees. MPC’s comments came in a letter to the committee. The hearing looked at five pieces of legislation related to lending to small businesses.

Last month, MPC sent a letter to Congress and federal agencies asking them to “look closely” at Amazon’s November announcement that it would stop accepting Visa credit cards issued in the U.K. because of high fees charged to process transactions. Amazon dropped the ban just before it would have taken effect in January, saying it was “working closely with Visa on a potential solution.”

“Small merchants and the entire economy thrive in an open and competitive market,” wrote MPC in the comments. “Unfortunately, today’s credit card market is anything but open or competitive. Congress can and should act quickly to implement reforms to bring competition and transparency to the U.S. credit card market. Main Street businesses are looking to Congress to address the broken card market that continues to stunt our national economic recovery and threatens to do even more harm in the immediate future.”

Processing fees for all types and brands of U.S. cards totaled $110.3 billion in 2020, up 70% over 10 years, according to the Nilson Report. At current rates, merchants receive less than 98 cents on the dollar when a credit card is used and have to adjust prices accordingly. Swipe fees are most merchants’ highest cost after labor and equate to an estimated $724 a year for the average U.S. family, according to CMSPI.

In the U.S., 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.

The Merchants Payments Coalition represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants.