As a small business owner, I have experienced first-hand the detrimental impact of excessive swipe fees imposed by credit card companies. Instead of using this money to hire new staff, expand our business, or boost our local economy, this money is sent to major financial institutions to add to their already record profits.
These swipe fees may appear insignificant on an individual transaction basis, averaging 2.2%, but their cumulative effect typically results in the second highest overhead cost for retailers. Iowa alone pays more than $850 million in swipe fees, representing a substantial cost that eats into our already slim profit margins. For businesses like ours, every dollar is crucial. The high swipe fees make it increasingly challenging for us to invest in our business, offer competitive prices, and create more job opportunities within our local community.
Given the anti-competitive nature of how swipe fee rates are set, with Visa and Mastercard setting the rates and big banks collecting the fees, small businesses have no room to negotiate and are stuck paying increasingly higher fees.
But it’s crucial to highlight the broader economic implications. Swipe fees affect not only small businesses but also consumers. When businesses face high swipe fees, they are often forced to pass on those costs to their customers in the form of higher prices. This results in a ripple effect where the burden of these fees is ultimately shouldered by ordinary consumers, who end up paying more for goods and services.
Luckily a solution is on the horizon. The Credit Card Competition Act, with its key provision requiring large credit card-issuing financial institutions to offer at least two credit card routing networks, one of which would be an alternative to the dominant Visa/Mastercard duopoly, represents a groundbreaking shift.
The benefits of this legislation are crystal clear. First and foremost, it will encourage better services and lower costs in the credit card industry. Increased competition among networks will compel them to compete based on service quality and fees, offering consumers and merchants more choices and reducing costs. A similar requirement has been in place for debit cards for over a decade, leading to increased competition and innovation in that sector.
This bill will also grant merchants the flexibility to choose which network to use for processing transactions, providing them with more options and lower fees. Importantly, it won’t impact smaller banks and credit unions but will focus on the largest players in the industry with over $100 billion in assets.
The CCCA introduces market competition where it is sorely needed. Yet, the credit card industry, including airlines, continues making false claims that competition in the credit card market would eliminate credit card rewards. These claims have been debunked repeatedly. Credit card rewards are determined by the issuing bank, not the processing network (Visa or Mastercard). A study by CMSPI found that if the Act passed, rewards would only be reduced by a minimal amount, at most 0.10%, and banks’ profits from swipe fees could easily make up the difference to maintain current reward levels. Credit card companies rely on rewards to distinguish their offers from each other, and the threat of rewards going away is just a way for Visa and Mastercard to trick consumers so they can continue to pad their profit margins.
I urge Sens. Chuck Grassley (R-IA) and Joni Ernst (R-IA) to recognize the crippling effect of swipe fees on small businesses in Iowa. Legislative action is imperative to bring fair competition to the system, protecting our local businesses and our communities’ prosperity. At a time when we are all striving to rebuild our economy, addressing this issue is paramount to ensuring the survival and growth of businesses like mine.
Joe Van Ginkel
Cumming
