Is Using Your Credit Card About to Get Cheaper?

It's possible that when merchants save money, you'll save money, too.

When it comes to credit card processing, Visa and Mastercard are practically the only game in town. Here, we'll tell you how retailers are fighting back and how, if they are successful, you may save money.

Swipe fees

Each time you pay for a purchase with a credit card, big banks and credit card networks like Visa and Mastercard charge the merchant over 2% of your total bill. That means if your purchase rings up at $100, the merchant gets to keep $98 and $2 goes to the card network.

It doesn't sound too bad, does it? The problem is this: Those transaction fees have more than doubled over the past decade, and last year, big banks and card networks were paid a record $137.8 billion in swipe fees alone.

According to the Merchants Payments Coalition (MPC), Visa and Mastercard control more than 80% of the market. Because they're in control, Visa and Mastercard block competitors from taking over a greater portion of the business. They're able to restrict credit card processing to their own networks, meaning it's Visa and Mastercard that rake in the lion's share of swipe fees.

A call for change

MPC recently sent a letter to each member of the U.S. House of Representatives and the U.S. Senate, asking lawmakers to pass legislation that would allow other payment networks to process bank card transactions.

According to the more than 1,800 retailers nationwide who signed the letter, doing so would create competition over fees, security, and service. The hope is that such competition will drive down the cost of swipe fees, much as it did in 2011 after debit transactions were opened to competition.

A huge deal for some businesses

Jennifer Hatcher, chief public policy officer for Food Marketing Institute (FMI), explained that swipe fees amount to the second- or third-highest expense for most businesses, after labor and rent. For a business like a supermarket, where profit margins are infamously low to begin with, swipe fees often exceed the profit margin. If they want to keep the doors open, supermarkets must pass the cost of swipe fees along to their customers.

According to MPC, the cost of swipe fees drove up consumer prices by approximately $900 per family last year. How much money American families will be able to keep tucked away in their checking accounts if Congress acts is yet to be determined.

Any bill passed would only apply to financial institutions with at least $100 billion in assets. This includes about 30 of the largest banks in the country and one credit union. Smaller banks and credit unions would not be impacted.

Card networks and large banks fight back

As might be expected, credit card networks and large banks are represented by a lobbyist group called the Electronic Payments Coalition (EPC). According to the EPC, allowing other networks to process transactions would add billions of dollars to large retailers. Lobbyists also claim that credit card rewards programs would be impacted, cybersecurity protection would be weakened, and access to credit would be reduced if Congress were to pass a bill allowing for competition. 

Time will tell if Congress is willing to act on the merchant's request by opening up the process to more than the two biggest players.