Many small businesses are breathing a little easier as inflation has subsided and the race for workers slows. But consumers’ continued adoption of credit cards is increasingly reducing their margins.
Gene-Christian Baca, owner of Walter’s Hot Dogs in Marmaroneck and White Plains, New York, estimates that he now pays about $50,000 a year in costs associated with processing credit card transactions, a sum that he says, has exploded as card processing rates rise and more customers pay by card rather than cash.
“Each year, 3% of all our sales are wasted just on credit card processing,” he said.
Merchants have long borne these “swipe fees,” the catch-all term for payments from businesses to banks and card companies every time customers swipe. While a federal rule caps debit card swipe fees at 21 cents per transaction, credit card swipe fees can be much higher.
And as many shoppers have ditched cash for plastic cards or mobile payment apps, businesses have seen credit card transactions increase. They accounted for 32% of all U.S. consumer payments in 2023, up from 24% in 2019, according to a Federal Reserve study. The share of cash decreased to 16% over the same period, compared to 26% previously.
Spending on American Express, Discover, Mastercard and Visa cards in the United States jumped to $5.25 trillion in the first half of 2024, up from about $4.98 trillion during the same period in 2023, according to data provided to NBC News by The Nilson Report, which covers the payments industry.
These changes in customer habits have increased costs for many businesses. Merchants paid an average of 2.26% swipe fees for transactions using the Visa and Mastercard credit card networks in 2023, the latest year for which data is available, according to Nilson. The two companies accounted for more than $100 billion of the $172 billion in total U.S. swipe fees in 2023, Nilson said, and Visa accounted for 52% of credit card spending across the four major card networks .
Some Visa fees are now increasing. On Jan. 1, the card network increased two of the credit card swipe fees it charges banks and processing companies. The move comes amid growing criticism, including from some lawmakers, who say the swipe fees are excessive and are often passed on to buyers.
“Most likely, higher swipe fees from Visa would ultimately result in higher prices for people in the store,” said Matt Schulz, chief credit analyst at LendingTree. “It’s unclear how quickly this would happen, but generally speaking, when these fees tend to increase, merchants would tend to pass these additional costs on to consumers. »
The Merchants Payments Coalition, an advocacy organization backed by major restaurant, retail and other trade groups, estimates that Visa’s additional fees will amount to $100 million a year.
“It doesn’t sound like a lot, but it increases the amount of each transaction, and it really adds up over time,” said Doug Kantor, executive committee member of the Merchants Payments Coalition and general counsel of the National Association of Convenience Blinds. .
The Merchants Payments Coalition says the $172 billion in swipe fees in 2023 set a record and estimates they cost the average family more than $1,100. The group is campaigning for more transparency in credit card fees, more competition between networks and lower fees.
Visa says its changes are aimed at improving the network. When confronted by policymakers about some of its swipe fees, the company said it “had no incentive to set them too high or too low.”
A Visa spokesperson told NBC News in a statement: “We are constantly improving our network to better serve the businesses and consumers who increasingly choose to transact with us. Everything we do is designed to make paying and getting paid with Visa more convenient, secure and reliable.
The Electronic Payments Coalition, an advocacy group that supports card networks including Visa, says average credit card payment fees haven’t changed much over the past decade, even though sales have increased. The organization also noted that businesses incur distinct costs when handling cash. This can range from operating cash registers to paying bank account fees.
Companies handle swipe fees differently. Some, like Walter’s Hot Dogs, factor costs into their prices. Others try to encourage customers to use cash. Patz Deli in Manchester, New Hampshire, charges its customers a 4% convenience fee for credit card transactions to cover credit card processing fees and equipment.
“It’s a cost that we don’t necessarily have to cover ourselves because it’s not our credit card,” said owner Pat Burns. “It’s your choice to use it, not ours, but we’re the ones who get charged for it.”
He said the grocery store introduced convenience fees over the past two years as it faced increasing pressure from taxes, wages and other expenses.
“At the end of the month, by the time you bring home money, 10 other people have already put their hands in it,” Burns said. “Even kind of like credit cards, 3.4 percent goes a long way in helping small businesses stay afloat.”
Consumer experts recommend using cash for small transactions, using rewards cards to get the most out of every purchase, and paying in person rather than over the phone when possible. Telephone transactions often result in higher fees for businesses due to security risks.
The fight against sweep fees has reached Congress. The Credit Card Competition Act, a bipartisan bill led by Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kan., aims to spur competition among credit card processing companies – what the Merchants Payments Coalition considers essential.
But the bill has stalled. Several groups supporting banks, credit card networks and credit unions oppose the measure, saying it would hurt small businesses and consumers, in part by limiting rewards.
“Swipe fees are definitely a very controversial thing and have long been a battleground between credit card issuers, networks and merchants,” said LendingTree’s Schulz. “It feels like this battle is really only going to continue for a little while.”
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