Make Credit Card Companies Play by the Same Rules as Other Businesses

Isn’t it time for banks and the card industry to play by the same rules as the rest of the business world?

January 03, 2022

Swiping Credit Card

By Tommy Hunt

Editor’s Note: This op-ed by Tommy Hunt, president of E-Z Stop Food Marts Inc., a NACS retailer member, appeared in the December 22, 2021, edition of the Tennessean.

MARYVILLE, Tenn.—While many Tennessee retailers were struggling to survive the pandemic last year, big banks and credit card companies raked in over $100 billion nationwide by skimming hidden “swipe” fees off the top every time consumers used a credit or debit card to pay. For credit cards, the fees average a little over 2% of the purchase price and amount to a tax of about $2 on every $100 spent—a tax no one gets to vote on.
These fees are most retailers’ highest cost after labor and drive up prices by more than $700 a year for the average family, according to payments consulting firm CMSPI, far outweighing the $170 banks claim consumers receive in credit card rewards.

I should know. At E-Z Stop Food Marts Inc., we paid $2.8 million in swipe fees last year for our 24 stores in East Tennessee. That’s more than $100,000 a store and far too much for a small, family-owned business with narrow profit margins to simply “absorb.”

If not for these fees, we could offer lower prices, hire more workers, support more local charities or maybe even open another location to better serve our customers. Instead, the money goes out of state. The big national banks that get these fees have huge profit margins—and the giant credit card companies that set the fees do, too.

Visa and Mastercard have monopolized the market.

At current prices, these fees mean the card industry makes more than I do on a gallon of gas when customers pay by credit card—about 7.5 cents compared with an industry average profit of less than six cents. That’s more than $1 on every full tank.

Adding insult to injury and making it even harder for small businesses to stay afloat, Visa and Mastercard plan to increase fees by $1.2 billion nationwide next spring.

The fees are so high because the card industry has a long history of price fixing. Banks that issue Visa and Mastercard cards follow swipe fees set centrally by the two networks rather than competing to give merchants the best deal. Multiple lawsuits have said the OPEC-like collusion violates federal antitrust law.

Furthermore, Visa and Mastercard see to it that transactions on their credit cards can only be processed over their own two respective networks rather than the dozen independent processing networks like Star, NYCE or Shazam that could do the job for lower fees and more securely if given the chance.

This puts consumers at risk because the Federal Reserve says debit transactions processed over Visa and Mastercard’s networks have five times as much fraud as independent networks. We don’t know the comparison for credit cards because Visa and Mastercard have blocked the independent networks from handling those transactions.

Debit card processors have meant savings for consumers.

In 2010, Congress said enough. After years of hearings and debate, lawmakers passed legislation bringing competition to the card market for the first time by limiting Visa and Mastercard’s virtual monopoly over debit card processing and requiring that independent networks be given a chance to process those transactions.
The law also put limits on how much Wall Street megabanks could charge unless they set their fees independently. Small local banks can still charge as much as they like.

The ability to choose debit card processors has been highly successful, saving merchants an estimated $9 billion a year with noted economist Robert Shapiro saying 70% has been passed on to consumers. Rather than increasing prices, stores like mine have used the savings to keep consumer prices from increasing even more amid significant inflation in wholesale prices, particularly during the pandemic.

Unfortunately, Visa and Mastercard’s anti-competitive rules remain in place for credit card processing, locking out innovators. And their credit card swipe fees alone have more than doubled over the past decade as a result, totaling $61.6 billion last year, according to the Nilson Report. Clearly, credit cards could benefit from some of the same competition that has benefited consumers and merchants in the debit card market.

Swipe fees aren’t the only cost of accepting credit cards. The card networks unilaterally shifted most of banks’ liability for card fraud to gas stations this year [2021] unless they installed new EMV chip card readers. That’s a cost of about $80,000 for the average five-pump station—$3.2 million for a company the size of E-Z Stop. And the card industry hasn’t shared the cost or reduced swipe fees even though part of the swipe fee supposedly covers banks’ fraud costs, and they’re the ones who benefit from the new readers.

In the business world, competition and free markets are king. Whether you run a gas station, retail store, restaurant or grocery store, customers see your prices, know your product, and vote with their pocketbooks. Isn’t it time for banks and the card industry to play by the same rules as the rest of the business world?
Isn’t it time for Tennessee’s members of the House and Senate to stand with Tennessee merchants and consumers on Main Street rather than card networks and big banks on Wall Street?

Tommy Hunt is president of E-Z Stop Food Marts Inc., based in Maryville with 24 locations in Eastern Tennessee.