What’s All This Talk About Swipe Fees?

By Jeff Lenard   read

Consumers should care about credit card swipe fees, and here’s why.

August 24, 2022

credit-card-swipe_lg.jpgIn the 1983 movie National Lampoon’s Vacation, Clark Griswold takes the ‘Family Truckster’ to the only auto repair shop in town for emergency repairs after an offroad misadventure. He asks the mechanic, “What’s the bill?” The mechanic replies, menacingly, “How much you got?”

That scene pretty much describes the current credit card market. There is no competition, so there is no reason to compete on price. You pay what Visa and Mastercard say you will pay—and they are fighting to keep it that way.

Wait, what? No competition, comrade? I thought, as the saying goes, that if you build a better mousetrap, the world will beat a path to your door. Especially in in the United States of America.

Nope, that’s not how it works with credit card swipe fees.

In short, swipe fees, also known as interchange fees, are the 2%–3% that credit card companies charge retailers every time a customer swipes their credit card to make a purchase. Visa and Mastercard set the swipe fees for the thousands of banks that issue their cards—and consumers foot the bill.

Here’s how it works: If you have a $50 fill-up at the pump, likely more than a dollar of that can be chalked up to swipe fees. If you’re a typical driver, you fill your gas tank at a convenience store about 50 times a year, which means you’re likely paying at least $50 annually in swipe fees at the pump alone. If you buy $100 worth of groceries, about $2.25 of what you pay could be taken in swipe fees. Now apply that to every other item you pay for with your credit card.

It gets worse this year with inflation at 40-year highs. Swipe fees are a percentage of the total price, so when inflation spikes, so do swipe fees. When card usage increases, swipe fees take a bigger bite out of your wallet. Swipe fees have more than doubled over the past decade and now top $137 billion annually. By comparison, they were only $16 billion in 2001. Plug that through an online inflation calculator and that $16 billion in in 2001 is $25 billion in 2022 dollars. Yet, swipe fees today are $137 billion.

Now you may be asking, “How is this possible? Haven’t massive advances in technology greatly enhanced efficiencies and led to reduced costs?” Of course they have, but when there is no competition there is no need to use prices to attract customers. Instead, the fees just increase.

The banks that control the credit card market want to tell you the system works perfectly. But they also told you that mortgages were the safest investments before the financial crisis. They say that gas stations were the reason for debit holds when in fact banks are responsible for those holds on your card at the pump. And that swipe fees are the cost of business. But they can’t explain why swipe fees are higher in the United States than every other developed country. They want to tell you anything that might distract you from the problem that costs the average American family more than $900 a year. They must think, to quote the auto mechanic from Vacation, “You musta got manure for your brains.”

Retailers have no effective tools to manage credit card swipe fees. But, you do see some fuel retailers offer a discount if you pay by cash. Or some small, local businesses have handmade signs asking you to consider paying by cash. However, Visa and Mastercard’s operating rules actually make these discounts difficult to offer. If you don’t believe me, take a look at Visa’s operating rules, but be sure to set aside some time because they’re 891 pages. It would take you less time to read “A Game of Thrones.”

Support is growing to change this broken system and introduce competition. In July, the  U.S. Senate introduced legislation to address credit card swipe fees. The bill has bipartisan support. Let me repeat that—in this day and age, the bill has bipartisan support.

The Credit Card Competition Act of 2022 seeks to enhance competition and choice in the credit card network market, which is currently dominated by the Visa-Mastercard duopoly that controls about 84% of the nearly $5 billion credit card business. In short, it would require banks to put a second network on a credit card, meaning it can’t be just Visa or just Mastercard—they’d have to add a smaller independent network on the card, too. When a credit card is used to pay at a convenience store, the retailer gets to choose which network to route that transaction through. The networks will compete for the retailer’s business, and as any retailer can attest, competition is always good for the consumer because it drives prices down. In fact, it’s estimated this legislation, if enacted, would save American businesses and consumers $11 billion a year. Visa and Mastercard already compete with other networks on debit cards, so we know that the same can work on credit cards.

Sen. Richard Durbin (D-IL), co-author of the Credit Card Competition Act and a longtime champion of reforming swipe fees—hence the 2011 law named after him that addressed debit—noted in a press release that “Credit card swipe fees inflate the prices that consumers pay for groceries and gas. Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”

Sen. Roger Marshall (R-KS), also a co-author of the bill, agrees: “When it comes to Main Street vs. Wall Street, I’ll choose Main Street every time. Convenience stores, gas stations and other small businesses in Kansas are being taken advantage of… at a time when they, and the communities they serve, are grappling with crippling inflation and staring down the barrel of a looming recession. Competition is the heartbeat of capitalism and that is what our bill will create, competition.”

Swipe fees are clearly a problem. They cost the convenience store industry $37 million—a day. And unless you are part of the elite cape and monocle crowd that sets and patrols swipe fees, these fees hurt your ability to manage your household budget. Ask your Senator to support the swipe fee bill. Let’s fix this now. After all, if one guy with a wrench could fix that battered Family Truckster, imagine what we could do if we worked together to fix the broken swipe fee system.


Jeff Lenard works for an industry that embraces competition to continually improve. After all, the theme of the 2018 NACS Show was, you guessed it, “Compete.” He is still speaking in third person and hopes to see you and 25,000 other attendees at the 2022 NACS Show in Las Vegas, October 1-4.
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