WASHINGTON—The Merchants Payments Coalition has called on Congress to investigate Visa and Mastercard’s anticompetitive dominance over the U.S. credit and debit card markets, citing President Biden’s call in his State of the Union address to fight inflation by increasing competition, according to a news release.
“The two giant card networks and their partner mega-banks routinely use their market power to stifle competition and charge merchants the highest swipe fees in the industrialized world,” MPC said in a letter to the House Financial Services Committee. “MPC requests that the committee immediately investigate how Visa and Mastercard are allowed to double down on the pain they inflict on Main Street when everyone else is working to tackle inflation. It is crucial for Congress to act swiftly and implement real reforms to bring true competition, transparency and equity to the U.S. payments market.”
MPC’s comments came in a letter to the House Financial Services Committee, which held a hearing yesterday on inflation, which has hit a 40-year high during the COVID-19 pandemic.
Biden last week said “demanding more competition” is a key to addressing inflation. “Capitalism without competition isn’t capitalism,” Biden said. “It’s exploitation, and it drives up prices,” the president said.
“That is particularly true in the U.S. card payment system, which is broken and lacks the fundamentals of a competitive functioning market,” MPC said, noting that Visa and Mastercard control 87% of the credit and debit card markets and centrally set the swipe fees that banks that issue their cards charge merchants to process transactions. “It is difficult to imagine any other market in the U.S. economy in which two entities set prices for thousands of businesses that should be competitors. That lack of competition or downward pricing pressure has resulted in out-of-control swipe fees and increases inflation throughout the economy.”
Swipe fees for Visa and Mastercard credit cards average 2.22% of the purchase price and totaled $61.6 billion in 2020, up 137% over the prior decade, according to the Nilson Report. When all types and brands of cards are included, processing fees totaled $110.3 billion in 2020, up 70% over 10 years.
Swipe fees mean merchants receive less than 98 cents on the dollar when customers pay by credit card, and merchants have to set prices higher to make up for the loss. The fees amount to an estimated $724 a year for the average U.S. family.
Because the fees are a percentage of the transaction amount, the amount collected rises as prices rise, the letter said. When a $100 item increases to $107 based on the 7% inflation seen in 2021, swipe fees increase from $2.22 to $2.38, for example.
“This structure ensures greater profits for banks and card networks as prices rise,” MPC said in the letter. “The compounding multiplier effect of inflation is guaranteeing mega-banks massive profits paid for by American consumers and Main Street merchants.”
The fees are set to rise even higher when $1.2 billion in increases planned by Visa and Mastercard take full effect in April. The increases were delayed from a year ago after members of Congress said they would “undermine efforts to help the economy recover.”
Visa and Mastercard told the Wall Street Journal that part of the reason why businesses were able to weather the pandemic was because they were able to accept card payments. The fees, they have said, help cover costs related to fraud prevention and innovation.
“Our focus remains ensuring the safety and security of payments while balancing the interests of all parties,” a Mastercard spokesman told the Journal.
The Mastercard spokesman also said that the company is lowering costs for all merchants with transactions below $5 as well as hotels, casual dining, daycare facilities and other sectors that were hit hard by the pandemic.
Visa has said that it is lowering fees for online and in-store purchases at some small businesses with $250,000 or less in annual consumer credit-card volume. Some retail categories, like convenience or grocery stores, restaurants and gas stations, will be excluded.
“It is long past time that small businesses had relief on fees. Unfortunately, Visa’s announcement hides the ball and is less than it seems,” said Doug Kantor, executive committee member for Merchants Payments Coalition and NACS’ general counsel. “Repeatedly over the years, Visa has promised small businesses relief that never materialized. This announcement looks like another mirage geared toward public consumption that won’t give much help.”
Meanwhile, Mastercard plans to double its “Digital Enablement Fee” for online transactions while bundling several existing add-on services under the fee. That means merchants who use services from Mastercard competitors would end up paying twice, potentially undermining the competing firms.
In addition, Mastercard plans to automatically enable merchants to accept its new buy now, pay later (BNPL) program, subjecting merchants to high BNPL fees on top of swipe fees and giving Mastercard an unfair advantage over competing BNPL providers.
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.