As the labor market slows and inflation has subsided, many small firms are breathing easier. However, the increasing use of credit cards by consumers is reducing their profit margins.
The owner of Walter’s Hot Dogs in Marmaroneck and White Plains, New York, Gene-Christian Baca, estimated that he currently spends roughly $50,000 annually on credit card processing fees. He claims that this amount has increased due to rising card processing rates and an increase in the number of customers using cards instead of cash.
According to him, 3% of our total revenues are lost each year due to credit card processing alone.
These swipe costs, which are the collective term for the money that businesses pay to banks and card providers each time a customer swipes, have long been borne by merchants. Debit card swipe fees are capped at 21 cents per transaction by a federal regulation, although credit card fees can be significantly higher.
Additionally, businesses have witnessed an increase in credit card transactions as a result of consumers switching from cash to plastic cards or mobile payment apps. According to a Federal Reserve research, they accounted for 32% of all U.S. consumer payments in 2023, up from 24% in 2019.Over the same time span, Cash’s proportion decreased from 26% to 16%.
According to data given to NBC News by the Nilson Report, which analyzes the payments sector, spending on American Express, Discover, Mastercard, and Visa cards in the United States increased to $5.25 trillion in the first half of 2024 from approximately $4.98 trillion in the same period in 2023.
The expenses of many businesses have increased as a result of these changes in consumer behavior. In 2023, the most recent year for which data is available, merchants paid an average of 2.26% in swipe fees for transactions utilizing the Visa and Mastercard credit card networks, Nilson said. According to Nilson, Visa accounted for 52% of credit card spending on the four main card networks in 2023, and the two businesses generated over $100 billion of the $172 billion in total swipe fees in the United States.
Visa is currently increasing some of its fees. On January 1, the card network increased two of the fees it costs banks and processing businesses for credit card swipes. Critics, including some MPs, are increasingly opposing the idea, arguing that swipe fees are exorbitant and often passed on to customers.
According to LendingTree chief credit analyst Matt Schulz, increased Visa swipe fees will probably result in higher prices for customers in the long run. The speed at which that would occur is uncertain, but in general, when these fees increase, businesses usually pass those additional expenses on to customers.
Visa’s increased fees are expected to amount to $100 million annually, according to the Merchants Payments Coalition, an advocacy group supported by prominent restaurant, retail, and other trade associations.
According to Doug Kantor, general counsel for the National Association of Convenience Stores and a member of the executive committee of the Merchants Payments Coalition, that may not seem like much, but it adds up to a significant sum over time.
According to the Merchants Payments Coalition, swipe fees cost the average household more than $1,100, and the $172 billion they collected in 2023 established a record. The group is advocating for reduced fees, increased network competition, and greater transparency regarding credit card fees.
Visa claims that its modifications are intended to improve the network. The business has stated that it has no motive to set [them] at levels that are too high or too low in response to lawmakers’ concerns about some of its swipe fees.
In a statement, a Visa representative told NBC News: We are always improving our network to better serve the companies and customers that are choosing to do business with us more and more. Everything we do is intended to increase the convenience, security, and dependability of using Visa to pay and get paid.
Even while sales have tripled over the past ten years, the Electronic Payments Coalition, an advocacy group that supports card networks like Visa, claims that average swipe costs haven’t moved much. The group has also observed that handling cash results in unique expenses for firms. These can include paying bank account fees and running cash registers.
varied businesses have varied policies regarding swipe fees. Some incorporate the expenses into their prices, such as Walter’s Hot Dogs. Others are attempting to get clients to pay with cash. In order to pay for processing fees and credit card equipment, Patz Deli in Manchester, New Hampshire, charges patrons a 4% convenience fee for credit card purchases.
Since it’s not our credit card, we don’t necessarily have to pay for it ourselves, owner Pat Burns said. Although it’s your decision to utilize it and not ours, we are the ones who pay for it.
According to him, the deli implemented the convenience fee in the last few years due to increasing pressure from labor, taxes, and other costs.
According to Burns, ten other people have already gotten their hands on any money you bring home at the end of the month. Even a modest amount, such as 4% on credit cards, can make a big difference in small businesses’ ability to survive.
Consumer experts advise paying in person whenever feasible rather than over the phone, using rewards cards to maximize each purchase, and using cash for modest transactions. Businesses frequently incur greater fees for phone transactions because of security risks.
Congress has heard the battle over swipe fees. The Merchants Payments Coalition claims that increasing competition among credit card processing providers is crucial, and this is the goal of the Credit Card Competition Act, a bipartisan initiative led by Senators Dick Durbin, D-Ill., and Roger Marshall, R-Kan.
The bill, however, has stagnated. The legislation is opposed by a number of organizations that represent banks, credit card networks, and credit unions, arguing that it will hurt consumers and small companies by restricting rewards, among other things.
According to Schulz of LendingTree, swipe fees are undoubtedly a highly controversial topic and have long been a battleground between credit card issuers, networks, and merchants. The battle seems to be one that will continue for the foreseeable future.
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