Most consumers don't realize that every time they use a credit card at checkout, the businesses they are purchasing from are forced to pay a swipe fee. While this fee is invisible to consumers, businesses are all too familiar with it, as it often amounts to their highest overhead cost after labor.
Most people also don't realize that these swipe fees have nearly tripled in the past 10 years. In fact, American businesses are forced to pay some of the highest credit card swipe fees in the industrialized world. But the big credit card companies like Visa and Mastercard would prefer to keep consumers in the dark.
How did these fees get so out of hand? As with most market failures, these rising prices are due to a lack of competition.
Visa and Mastercard are single-handedly setting, and increasing, swipe fees. Even though consumers and small businesses are suffering under record-breaking inflation rates, they increased these fees yet again earlier this year. But while the two credit card giants set the fees, it's the big banks that issue the credit cards that collect them. And since Visa and Mastercard control about 80 percent of the credit card market, big banks are charging the same fees rather than competing to charge merchants lower fees.
If things do not change, swipe fees will continue to rise and force struggling retailers, restaurants, and grocers to pass the cost on to their customers.
Fortunately, some bipartisan leaders in Congress—namely Sens. Roger Marshall (R-Ks.) and Dick Durbin (D-Ill.), and Reps. Lance Gooden (R-Tex.) and Peter Welch (D-Vt.)—bucked the big banks by introducing the Credit Card Competition Act.
This bill requires card-issuing banks to provide merchants at least two routing options when it comes to processing transactions—Visa or Mastercard, plus one of several independent networks that offer lower fees and better security. Importantly, the legislation only applies to large financial institutions with over $100 billion in assets, which amounts to only about 30 banks nationwide. So, when Wall Street elites try to scare you into believing this legislation will hurt your local community bank or credit union, just remember their goal is to keep customers and Main Street businesses paying high swipe fees.
Additionally, this bill will increase the security of our payments market by limiting the influence of foreign governments like China. China UnionPay, a state-owned corporation, currently sits on the board that sets security standards for credit cards. At any given moment, banks could decide to have transactions on their cards processed by UnionPay, essentially granting an entity controlled by the Chinese government access to consumers' most secure data. The Credit Card Competition Act, however, will ban foreign companies from processing transactions, ensuring that our information isn't being outsourced.
As Congress sets its fall calendar, it is imperative for the sake of the national economy and security that passage of the Credit Card Competition Act is prioritized. We can't afford to wait any longer.
Dean Heller is an American businessman and politician who served as a United States senator for Nevada from 2011 to 2019. A member of the Republican Party, he served as the 15th secretary of state of Nevada from 1995 to 2007 and U.S. representative for Nevada's 2nd congressional district from 2007 to 2011.
The views expressed in this article are the writer's own.
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