While inflation rates slowed over November, the cost of everyday goods and services remain at record highs, according to the new Consumer Price Index report released this week. Several news stories framed this cooling-off period as a positive development, but an over 7 percent increase in the price of goods from last year does not make it any easier for Floridians to pay their bills. As Congress races to the end of the session, our elected officials still have time to address credit card swipe fees, which are an inflation multiplier that raises costs for business owners and customers alike.
Any small business owner who accepts credit cards knows swipe fees are a burdensome overhead cost. Set by Visa and Mastercard, these fees are hidden from most consumers and make everything more expensive.
For example, a grocery store’s typical profit margin is around 1 percent. Swipe fees average 2.2 percent of every credit card transaction, and the lack of competition in the payments marketplace allows these fee percentages to regularly rise. In the last decade, swipe fees have increased twofold. And unlike the major credit card companies, which regularly post record profits, small businesses continue to struggle to make ends meet and cannot afford these fees to continue to rise unabated.
Unfortunately, Visa and Mastercard are able to set the swipe fee schedule that big banks collect from businesses without opposition.
Without a market that allows for fair competition, swipe fees will continue to add to inflation and make it more difficult to achieve the American dream. Thankfully, the Credit Card Competition Act will address rising swipe fees if Sens. Rick Scott and Marco Rubio will make this policy solution a priority.
While big banks and credit card companies spend millions in ad dollars and on lobbyists to vilify the bill, the truth is it provides a simple solution: Give businesses a choice when it comes to processing credit card transactions. Providing a second option for businesses could save both businesses and consumers billions of dollars each year.
Importantly, this bill would only apply to the 28 largest banks in the nation that have more than $100 billion in assets and issue Visa or Mastercard credit cards, so this bill would not impact local community banks or smaller financial institutions.
Increased competition will also increase innovation in the payments marketplace. Processors will finally face market pressure to increase security and innovation to remain competitive. Similar legislation has spurred industry innovation. It was only after debit card swipe fee reform that networks began the introduction of end-to-end encryption of data and accelerated the adoption of EMV chip cards in the U.S.
It’s unacceptable that the United States has more cases of credit card fraud in the entire world – even with fewer transactions. It is clear more needs to be done to increase payments security, and increasing competition will certainly be a step in the right direction.
Small businesses have to compete every day for customers and do so by providing better services at lower prices. It is far past time that the major credit card companies have to compete in the payments marketplace.
Katie Morris is the chair of Citizens for Florida Prosperity.
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