Major credit card networks Visa and Mastercard are planning to increase the fees that retailers and marketplace sellers pay when accepting credit card payments from customers, according to a report by the Wall Street Journal, citing people familiar with the matter.
The fee hikes are scheduled to take effect in October and April, and will largely impact online purchases made by consumers using Visa and Mastercard credit cards.
According to estimates by consulting firm CMSPI, the increases could cost merchants an additional $502 million per year in credit card processing fees. Roughly half of the added costs will come from higher network fees collected directly by Visa and Mastercard.
The remainder stems from increases in interchange fees, also known as swipe fees, which are paid to the bank that issued a customer’s card. While these fees are largely invisible to consumers, they have been a major point of contention between merchants and card networks.
Last year, U.S. merchants and marketplace sellers paid a record $160.70 billion in processing fees to accept $10.589 trillion in payments from credit, debit and prepaid cards, according to industry publication the Nilson Report.
With Visa and Mastercard dominating the industry, both companies took in approximately $93 billion in credit card fees, up dramatically from $33 billion in 2012.
Merchants typically pass along at least some of these costs to consumers through higher retail prices. In response, more small businesses have begun offering discounts for non-credit card payments like debit, cash or check.
Card networks argue the fees help fund fraud prevention efforts and innovation. Banks use interchange revenues to finance popular credit card reward programs.
But many struggling merchants contend the pending increases couldn’t come at a worse time, with high inflation and interest rates still impacting businesses working to recover from the pandemic.
U.S. Senate Majority Whip Dick Durbin (D-IL), Chair of the Senate Judiciary Committee, and U.S. Senator Roger Marshall, M.D. (R-KS), lead sponsors of the Credit Card Competition Act, agree.
“[The] news solidifies that it is time to pass our bipartisan, bicameral legislation – the Credit Card Competition Act – to enhance competition between credit card networks and ultimately lower costs for businesses and consumers.
“We need to bring real competition to the credit card industry. Our bill ensures that the Visa-Mastercard duopoly ends their price gouging tactics that disproportionately hurt American families and small businesses.”
Last year, Durbin and Marshall, along with then-U.S. Representative Peter Welch (D-VT) and U.S. Representative Beth Van Duyne (R-TX), sent a bipartisan, bicameral letter to the CEOs of Visa and Mastercard, urging them not to raise their interchange fee rates.
Yet, despite the letter, Visa and Mastercard now seem poised to move ahead with the fee increases.
Previous attempts by lawmakers to intervene have stalled, but merchants hope the latest bill may find more success given the heightened attention now focused on the issue.
Impact on Marketplace Sellers
The fee hikes could hit individual marketplace sellers who depend on popular online marketplaces like eBay and Etsy to reach customers.
In recent years, these sites have transitioned to processing payments in-house, with some incorporating them into their selling fees. That means the higher card fees could directly lower revenues for the mom-and-pop sellers that make up much of these platforms’ user base.
While marketplace sellers may hope that platforms opt to absorb some of the cost increases, history says otherwise. Sellers should expect increases in selling commissions or other payments-related charges if Visa and Mastercard have their way.
The same small-scale sellers already dealing with economic uncertainty and inflation – often using marketplaces to help ends meet – could soon take another hit from the credit card industry’s pending greed.
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