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Credit card swipe fees are hurting SD small businesses and consumers

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Credit card swipe fees are hurting SD small businesses and consumers

May 28, 2024 | 6:07 pm ET
By Kelli Ford
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Credit card swipe fees are hurting SD small businesses and consumers
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Ileana Garcia looks in her wallet for credit cards during a sermon about faith-based financial management at the Miami Vineyard Community Church on March 7, 2009, in Kendall, Florida. (Joe Raedle/Getty Images)

Despite hopes of cooling inflation, the consumer price index climbed 3.5% in March, exemplifying the ongoing strain on American businesses and families as they grapple with elevated prices. For South Dakotans, median home listing prices adjusted for inflation are up 26% percent since 2020, much higher than the national average of 11%. Everywhere Americans look, things are getting more expensive. But unaware to many, and adding to this financial stress, are hidden credit card swipe fees that multiply the impact of inflation and hamper our local economy.

Despite processing costs becoming cheaper, the Visa/Mastercard duopoly continues to raise these fees on small businesses like mine, worsening the financial burden for merchants and consumers.

Last year, South Dakota merchants paid more than $268 million in credit card swipe fees, a charge incurred whenever a credit card payment is processed. These fees average around 1.5-3.5% of a total transaction amount and continue to rise year over year as major credit card companies consolidate control over the industry. Visa and Mastercard now dominate over 80% of the credit card market and, for the first time, pulled in over $100 billion in swipe fees last year.

What’s worse is that these excessive fees often get passed on to consumers through higher-priced products when merchants are unable to absorb the added cost. This has resulted in South Dakotans and Americans across the country paying on average more than $1,100 for inflated prices as a result of swipe fees. That’s comparable to the median price of rent in South Dakota, exemplifying the need to treat these fees with the urgency they demand.

And while these credit card giants are siphoning funds from our small businesses, they are also keeping our payments system less secure. 

Everywhere Americans look, things are getting more expensive. But unaware to many, and adding to this financial stress, are hidden credit card swipe fees that multiply the impact of inflation and hamper our local economy.

Visa and Mastercard have failed to address the security concerns raised by the Federal Reserve, showing rates of fraud for the two companies are now 8 times higher than that of comparable networks in the debit space. Without competition, Visa and Mastercard have grown complacent with security protections for their credit cards while their record-high profit margins see exponential growth. 

Safeguarding payment security for Americans also faces additional hurdles, as companies like China UnionPay are welcomed into domestic security standard-setting organizations largely controlled by Visa and Mastercard. UnionPay is a Chinese state-owned financial services corporation. It joined EMVCo’s governing body in 2013 and four years later was welcomed by Visa and Mastercard into the Payment Card Industry (PCI) Security Standards Council as a part of its decision-making body on payment security. Currently, UnionPay is available to American banks should they choose to enable their services on their cards, which is an extremely concerning possibility given China’s threat to national security.

Fortunately, Congress is considering the Credit Card Competition Act (CCCA) that would block networks like China UnionPay from continuing to pose a threat to national security and would increase competition in the credit card industry, helping to reduce swipe fees and bolster protections for merchants and consumers.

By allowing merchants to choose between at least two different processing networks when routing a transaction, the CCCA would make the credit card industry subject to increased competition, similar to how small businesses across the state must compete for business. The CCCA would encourage major players like Visa and Mastercard to reduce their excessive credit card swipe fees, and continue advancing their protections against fraud and other security risks to ensure merchants choose their services. With reduced swipe fee costs, merchants could then afford to lower their prices and spare consumers the added strain currently being imposed by these credit card behemoths.

Our federal delegation knows full well the consequences of inflation and the ongoing threat posed by China, and I hope Sens. Mike Rounds and John Thune will give careful consideration to the CCCA. It holds the potential to save South Dakota merchants more than $40 million annually and keep China’s influence at bay.