Tariffs may be an inflation worry but so are credit card processing fees, some say

While many Americans worry about tariffs potentially boosting inflation, merchants continue to warn of a cost increase that’s already certain: credit card swipe fees.

Banks, card processors and processing networks like Visa and Mastercard each charge a fee to process credit card transactions. The sum of those fees is called the “swipe fee,” which usually amounts to between 1% and 3% of the sale. Visa and Mastercard, which control about 80% of credit card processing, skipped fee increases in 2020 due to the pandemic and in 2021 under pressure from Congress. In 2022, they resumed hiking fees. In January, Visa plans to boost some of the fees it charges merchants and banks, according to a notice from the processor Global Payments.

Swipe fees are often merchants’ second largest expense after labor and eventually get passed down to consumers, experts said. They already cost the average household more than $1,100 annually, up from $900 in 2021, and will continue to climb unless Congress acts, according to the National Retail Federation (NRF). While consumer prices have risen about 20% since the pandemic, swipe fees have increased by 50% and hit a record $172 billion in 2023, the Merchant Payments Coalition (MPC) estimates.

“Inflation is coming down, but swipe fees keep going up, taking a bigger slice out of what it takes to put presents under the tree,” said Stephanie Martz, MPC executive committee member and NRF chief administrative officer and general counsel, in a statement last week.

The fees go towards the cost of securely sending payment information over the card network, authorizing and funding credit card transactions, reducing fraud, and offering reward programs like cash back and points, payments companies said.

Card transactions “improve the customer experience, drive higher sales, and guarantee prompt payments to business owners,” said Richard Hunt, executive chairman of Electronic Payments Coalition (EPC), a lobbying group, in a statement earlier this month.

EPC also disputes that swipe fees have risen sharply. Over the past five years, it said swipe fees have averaged about 1.8%, compared to about 20% inflation.

“Instead of pointing fingers, megastores should look at their own actions,” EPC said, pointing to corporate price gouging headlines over the past couple of years.

Michael Hershfield, founder and chief executive of fintech firm Accrue, said “that claim is misleading. While fees as a percentage of transactions may appear stable, the dollar amount has risen dramatically as consumer spending has grown… So, from a broader perspective, fees definitely haven’t been flat.”

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For years, Senator Dick Durbin (D-IL) and Senator Roger Marshall (R-KS) have argued for more competition in the credit card processing business to lower swipe fees. Since Visa and Mastercard control most of the market, they dictate what most businesses must pay for each transaction, he said.

“Retailers often have little choice in accepting these fees,” Hershfield said. “It’s a take-it-or-leave-it system dictated by the Visa and Mastercard duopoly.”

Durbin introduced the Credit Card Competition Act to require that at least one card processing network is available to merchants to route credit card transactions that’s neither Visa nor Mastercard.

“This way, small businesses would finally have a real choice: they can route credit card transactions on the Visa or Mastercard network and continue to pay interchange fees that often rank as their second or biggest expense, or they could select a lower cost alternative,” Durbin said at a Senate Judiciary Committee hearing last month.

Ballooning credit card debt: Credit card debt: Inflation, interest rates have more Americans carrying balances over

Even though the bill has received some high-profile support, including from Vice-president elect JD Vance, it’s unlikely to pass this year with the 118th Congress ending on January 3.

But merchants remain optimistic.

“It will pass, said Doug Kantor, general counsel of the National Association of Convenience Stores (NACS) trade group. “It’s when, not if.”

Senator Thom Tillis (R-NC) also said in last month’s hearings that merchants, Visa and Mastercard needed to work together to come up with a fee solution to help consumers and small businesses in the next 24 months. If not, he warned “the solution coming from Congress will not be good for anyone.”

In the meantime, merchants should take matters into their own hands, said Eric Cohen, chief executive of Merchant Advocate, which helps businesses reduce their fees and take a cut of the savings.

“Merchants have to negotiate (fees) and learn what is going on,” Cohen said. “Big box stores can do it, but smaller merchants don’t have the knowledge to because they don’t understand (the complex, non-transparent) language” in the fee structure contracts.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning. 

This article originally appeared on USA TODAY: Credit card processing fees are rising. Will Americans pay the price?