Credit card swipe fees are higher than ever, causing "cost creep"
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Credit card swipe fees hit record highs last year in the U.S., driving up prices and becoming increasingly visible to consumers already worried about the economy.
Why it matters: All kinds of local stores — restaurants, coffee shops, nail salons, retail stores and even car dealerships' service centers — are now passing those fees along to consumers paying with cards.
- And even if they don't, the increasing fees are causing a "slow cost creep over time that's impacting us all," says Ben Dinovelli, a lawyer and researcher at the Vanderbilt Policy Accelerator.
Zoom in: In North Carolina, if a customer is paying with a credit card, businesses can add a percentage to the bill to offset the fees credit card processors charge them on every transaction.
- It may show up on receipts as a "credit card surcharge," "service charge" or "other." Some places list a "cash pay" discount. (These are all from real receipts I collected in the Triangle.)
- Regardless of how it's billed, though, customers are rarely warned in advance.
By the numbers: The average swipe fee Visa and Mastercard — the two biggest players — charged merchants last year was 2.35%, a new high, according to Nilson Report, an industry publication.
- That average percentage compares with 2.26% in 2023 and 2.02% in 2010.
How it works: Swipe fees vary widely, and "smaller businesses get the shorter end of the stick," Dinovelli tells Axios.
- "You'll see really large firms like Costco are actually able to negotiate a pretty low fee on credit card usage," he says. (0.4% to Visa, his research found.)
That's because Costco-size companies have teams negotiating directly with the credit card companies, says Nick Simpson, managing director at Electronic Payments Coalition, which represents Visa and Mastercard.
- Small businesses tend to have their rates set by the processors, like Square, Stripe or PayPal, Simpson tells Axios.
- "There's really not — especially for a small merchant — a whole lot of negotiation. I mean, the interchange fees kind of are what they are," says Andy Ellen, president and general counsel of the North Carolina Retail Merchants Association.
The big picture: The fees "add up very quickly, especially for small businesses," Erin Witte, director of consumer protection for the Consumer Federation of America, tells Axios.
- Everyone is somehow paying a higher cost because of them, Witte says, "whether they're paying the actual fee or paying higher prices on goods."
- Even at businesses unwilling to add a surcharge, "we all pay for those interchange fees, because they are baked back into the cost of the product," Ellen adds.
Follow the money: Swipe fees are a big money-maker for credit card companies, especially as consumers turn away from cash, Dinovelli tells Axios.
- Credit card companies collected $148.5 billion last year from merchants, up 70% since the pandemic and 9% year-over-year, the Nilson report says.
- That's "enough to pay for two months of groceries for every single household in the United States," Dinovelli says.
Yes, but: That sum has grown largely because businesses are growing, Simpson says. While some is profit, he adds, the money also pays for fraud protection, rewards and security — all things consumers value.
- "It's not like the alternative — cash — is free," he says, mentioning industry research estimating that convenience store employees spend 15-20 hours a week counting cash.
Between the lines: The rewards landscape has grown increasingly competitive and complex since being introduced in the 1980s, according to the Consumer Financial Protection Bureau.
- Between points, miles and cash back, the average rewards-getter racked up $167 in 2022, totaling $40 billion industrywide, according to a 2023 CFPB report.
- Rewards tend to benefit high earners the most, since they often have better cards, according to CFPB.
State of play: Card surcharges are restricted both by businesses' contracts with credit card companies and by some states, Dinovelli explains. Some case law has also accumulated, and a pending settlement could have nationwide implications.
- North Carolina doesn't restrict surcharging, according to the National Federation of Independent Business, while places like California and New York require more upfront disclosures. Connecticut prohibits surcharges altogether.
- States are limited in how far they can go, Witte points out, since many aspects of national bank conduct can only be regulated by the federal government.
What we're watching: The bipartisan "Credit Card Competition Act," first introduced in Congress in 2022, aims to break up Visa and Mastercard's dominance, though it hasn't yet gained momentum.
- In North Carolina, the merchants' association is lobbying to prevent credit card companies from including tax and tips in the totals on which they calculate fees, though a bill filed this year in the General Assembly didn't go anywhere.
Stay tuned. Next, we'll talk to business owners about how they handle credit card fees.