US Merchants ask Congress to investigate interchange fees

The Merchants Payments Coalition (MPC) has called on Congress to investigate Visa and Mastercard’s anticompetitive interchange fees and dominance over the US credit and debit card markets, citing President Biden’s call in his State of the Union address to fight inflation by increasing competition.

“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.

“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 US payments market.”

The MPC’s comments came in a letter to the House Financial Services Committee, which is scheduled to hold a hearing this week on inflation that 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.”

“That is particularly true in the US 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 interchange fees fees banks that issue their cards charge merchants to process transactions.

“It is difficult to imagine any other market in the US 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.”

Interchange fees for Visa and Mastercard credit cards average 2.22% of the purchase price and totalled $61.6 billion in 2020, up 137% over the previous decade, according to the Nilson Report.

When all types and brands of cards are included, processing fees totalled $110.3 billion in 2020, up 70% over 10 years.

Interchange Fee Rises

Interchange 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 US 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. “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 takes 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.”

Meanwhile, Mastercard plans to double its “Digital Enablement Fee” for online transactions while bunding a number of 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 program, subjecting merchants to high BNPL fees on top of swipe fees and giving Mastercard an unfair advantage over competing BNPL providers.

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