When consumers use a credit or debit card to make a purchase, banks and card networks like Visa and Mastercard charge retailers a hidden “swipe fee” to process the transaction. For credit cards, the fees average about 2 percent of the transaction but can be as much as 4 percent for some premium rewards cards. Fees for debit cards from the nation’s largest banks are capped by the Federal Reserve at 21 cents per transaction plus 0.05 percent of the transaction amount, but cards from small banks are exempt. Together, credit and debit card swipe fees cost retailers and their customers more than $100 billion a year.
After several years of quiet, swipe fees are back in the spotlight, drawing attention in Congress and from regulators while facing new litigation over both credit cards and debit cards. NRF is continuing to lead retailers’ efforts to bring transparency and competition to the payments market.
Why it matters to retailers
Applied to millions of transactions each day, swipe fees are many retailers’ highest cost after labor, driving up consumer prices by hundreds of dollars a year for the average household and hurting retail sales because consumers buy less when prices go up. Swipe fees have grown from about $20 billion a year when NRF began tracking them in 2001 to $137.8 billion in 2021. Despite recent changes, card industry contracts, rules and practices still make it difficult to offer a cash discount, meaning most customers pay the credit card price – including the swipe fee – regardless of whether they use a card or not. The issue has been exacerbated by the increase in online shopping during the COVID-19 pandemic because virtually all ecommerce purchases are paid for with credit or debit cards. Swipe fees are higher for online purchases than in-store purchases, and most buy online, pick up in-store and curbside delivery purchases are subject to online rates as well.
NRF advocates for swipe fee reform
NRF has fought for fair swipe fees for two decades, saying the current system lacks transparency and competition and that banks’ cost of processing transactions has gone down as technology has improved. The card industry refuses to negotiate over the fees, and NRF has argued in court and before Congress that the way Visa and Mastercard set swipe fee schedules followed by virtually all banks that issue their cards violates federal antitrust law. NRF helps lead the Merchants Payments Coalition, a group formed by NRF and other merchant associations to address swipe fees.
NRF helped win passage of the Durbin Amendment, a landmark law that established the Federal Reserve cap on debit card swipe fees and also gave retailers the right to route debit transactions to the network of their choice for processing, ending a monopoly once held by Visa and Mastercard. The Durbin Amendment has saved retailers and their customers more than $9 billion a year on debit card fees, but credit card fees have yet to be addressed by Congress.
Swipe fees and related practices currently face action on several fronts:
- Visa and Mastercard imposed a $1.2 billion increase in credit card swipe fees in April despite a letter from Senate Judiciary Committee Chairman Richard Durbin, R-Ill.; Senator Roger Marshall, R-Kan.; Representative Peter Welch, D-Vt., and Representative Beth Van Duyne, R-Texas, saying it would add to inflationary pressure.
- Durbin responded by holding a hearing in May on “Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems.” Senators from both sides of the aisle questioned senior Visa and Mastercard executives on their swipe fee practices and heard from witnesses representing merchants and consumers. NRF submitted a letter citing concerns from small retailers and saying small businesses are hardest hit by the fees. During the hearing, Durbin proposed several solutions to rising swipe fees, including transparency and competition.
- NRF is pushing to see that long-pending class-action litigation over Visa and Mastercard credit card fees goes beyond just a monetary settlement to also address the way the fees are set. A $5.5 billion federal antitrust settlement reached in 2019 deals only with monetary damages and remains under appeal but a judge has approved NRF’s motion to intervene in related litigation over how the fees are set.
- NRF Chief Administrative Officer and General Counsel Stephanie Martz is co-counsel in a federal lawsuit brought by the North Dakota Retail Association and the North Dakota Petroleum Marketers Association seeking to have the Federal Reserve lower the 21-cent cap on debit card swipe fees. The case argues that the Durbin Amendment required that the cap be kept proportional to banks’ average cost for processing transactions. That cost has fallen by half since the cap was set a decade ago, but the cap has remained the same.
- At a 2021 Senate antitrust hearing, Durbin called the increases an attempt to “get even” for the cap on debit card swipe fees and asked “where is the policing authority to stop this duopoly?”
- The Federal Reserve says most debit cards fail to fully comply with the Durbin Amendment provision giving merchants the right to choose which networks process their debit transactions. Fewer than half of debit cards have “PINless” capability needed be routed to networks other than Visa and Mastercard when used online. New regulations proposed by the Fed would clarify that the routing provision applies online as well as in-store and would effectively require that PINless be enabled. Lack of PINless also keeps most contactless and mobile debit payments from being routed as required by law. NRF said the Fed’s action will help bring more competition to debit payments and plans to file comments in favor of the new regulations. The move came two years after NRF submitted a white paper to the Fed and the Federal Trade Commission outlining ”ongoing misconduct by Visa and Mastercard that inhibits merchant choice.”
- The Department of Justice is reportedly investigating Visa’s debit card practices while the FTC is investigating both Visa and Mastercard.
- Visa abandoned its planned acquisition of Plaid Inc. after the Department of Justice filed a lawsuit saying the takeover would threaten competition in the payments market. NRF had said in a letter to DOJ that financial technology firms like Plaid are the “one glimmer of hope” for alternatives to card networks such as Visa’s and urged the department to “carefully scrutinize” the acquisition.