Swipe Fees Will Add $2.5 Billion to Back-to-School Spending

For the average family that equates to the cost of a backpack or a lunchbox.

July 18, 2022

Parent and Child Shop for School Supplies

WASHINGTON—Swipe fees will contribute an estimated $2.5 billion to the cost of everything from crayons to computers as American families hit with rising inflation send their children back to school and college this year, according to the Merchants Payments Coalition (MPC), of which NACS is an executive committee member. That amounts to almost $20 in swipe fees for the average family.

“Swipe fees are a hidden tax on almost everything Americans buy regardless of whether they pay with cards or cash,” MPC executive committee member and NACS General Counsel Doug Kantor said. “These fees have been soaring for years but are particularly burdensome when families are hit with the high inflation that has weakened buying power this year. When a low-income family struggling to make ends meet pays $20 more because of swipe fees, that can make the difference in being able to replace a worn-out backpack or buy a warm winter coat.

“Because swipe fees are a percentage of the transaction amount, these fees automatically go up as prices go up, driving inflation even higher,” Kantor said. “Banks and card networks are raising prices on the backs of American schoolchildren trying to get an education. That isn’t right, and it’s time for Congress to require competition that would bring these fees under control.”

Banks and card companies take more than 2% of the transaction every time a credit card is used to make a purchase. Swipe fees soared 25% last year to a record $137.8 billion for credit and debit cards combined and have more than doubled over the past decade. They are most merchants’ highest operating cost after labor and drive up prices for consumers, working out to about $900 a year for the average family. Since credit card rules make discounts difficult, consumers pay more even if they pay with cash, debit cards or checks.

Families plan to spend an average $864 on clothing, electronics and other school supplies for K-12 students this year, or $37 billion, according to the National Retail Federation. Based on the average 2.22% rate for Visa and Mastercard—which control 80% of the credit card market and centrally price-fix the swipe fees charged by banks that issue their cards—that includes almost $20 in swipe fees for the average family and adds up to $821 million nationwide.

For families with students in college, spending is expected to average $1,199, or $74 billion, resulting in almost $27 in swipe fees per family, or $1.6 billion nationwide. Swipe fees on K-12 and college spending combined could total almost $2.5 billion.

The average school backpack costs about $30, resulting in about 65 cents in swipe fees, and lunchboxes can be around $20, or about 45 cents in swipe fees. Even though swipe fees might appear small on an individual item, the nickels and dimes add up: Swipe fees account for almost $2 of the $88 price of a school-recommended list of pencils, crayons, paper and similar supplies for a first-grader being advertised by one national office supply retailer.

As students get older, costs and swipe fees go up. For a 12th grade high school student, supplies from the same retailer total $255, or over $5 in swipe fees. The $120 price of a graphing calculator commonly required for high school math and science classes includes swipe fees of over $2.50, while a $500 laptop for a college student includes about $11 for swipe fees. A more sophisticated $1,000 computer would include over $20 in swipe fees.

Swipe fees remain one of the highest operating costs for convenience store retailers after labor, according to NACS State of the Industry data. 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), NACS SOI data indicate.

NACS Kantor testified at a Senate Judiciary Committee in May on behalf of the convenience store industry and the Merchants Payments Coalition. In his opening statement, Kantor described the antitrust issues borne from Visa and Mastercard’s dominance of the credit card market.

“This is an incredibly concentrated market, and none of [the banks] are setting their own prices. That doesn’t make any sense,” stated Kantor. “On top of that, Visa and Mastercard set the terms by which cards are accepted, which make sure to insulate those fees from any other competitive market pressure to make sure they can stay high.”

Sen. Dick Durbin, (D-Ill.), Sen. Roger Marshall, (R-Kan.), Rep. Peter Welch, (D-Vt.) and Rep. Beth Van Duyne, (R-Texas) wrote to Visa and Mastercard in April asking the card companies to withdraw the rate hike. The lawmakers said the increase would add to inflationary pressure and is the “last thing American families deserve right now.”