NACS Encourages C-store Industry to #FightSwipeflation

The Senate Judiciary Committee is looking into swipe fee practices.
swiping a credit card

WASHINGTON, D.C. — The swipe fee battle continues on Capitol Hill.

On May 4, the Senate Judiciary Committee held a hearing to look into the swipe fees levied on retailers by Visa, Mastercard and big banks.

The hearing, "Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems," is the first time since 2006 that the committee debated anticompetitive practices of the credit card industry, according to NACS.

As the association pointed out, American businesses pay the highest swipe fees in the industrialized world, and they are the second highest operating cost for convenience stores. In 2021, overall card fees paid by the convenience store industry were $13.5 billion, up 25.6 percent in 2021 vs. 2020 ($10.7 billion), according to NACS State of the Industry data.

"Because a large part of these fees is a percentage of the transaction amount, they go up with every cent of inflation and act as an inflation multiplier," NACS said. "We have seen a historic jump of more than 26 percent in our swipe fees in the past year, and Visa and Mastercard still went forward with swipe fee increases two weeks ago, ignoring the requests of a bipartisan group of lawmakers."

To help with the fight, NACS asked the industry to ask members of Congress to #FightSwipeflation and hold Visa and Mastercard accountable for their price-fixing and anti-competitive behavior.

Hearing Testimony

During Wednesday's hearing, NACS' General Counsel Doug Kantor submitted testimony to the Senate Judiciary Committee on behalf of the convenience store industry and the Merchants Payments Coalition.

In his written testimony, Kantor pointed out "the exorbitant swipe fees" levied on retailers and how those fees are the direct result of price-fixing by Visa and Mastercard. Through their operating rules, the global networks go even further to insulate the high fees they set from market forces by ensuring retailers have no choice but to accept all their cards, even those with the highest swipe fees, according to Kantor.

"In 2021, the fees paid by convenience retailers to accept payment cards jumped by 26.5 percent," Kantor said in his written testimony. "Not only that, but the rate of increase has been even higher thus far in 2022 — and that was even before Visa and Mastercard moved forward with rate increases in April that, combined with the rate increases that Visa publicly said it would delay last year, amount to an additional $1.2 billion per year in additional fees. These increases are completely unsustainable."

Ultimately, according to Kantor, excessive swipe fees hurt consumers because they drive up the price of goods. Kantor noted that the pre-tax profit margin for c-stores is approximately 2.47 percent. "With those margins, which are around or below the level of swipe fees these businesses pay, those fees must be passed on to consumers or retailers would go out of business," he said.

Other witnesses in the Senate Judiciary Committee hearing were Laura Shapira Karet, chair and CEO of Giant Eagle; Charles Kim, executive vice president and chief financial officer of Commerce Bancshares; Linda Kirkpatrick, president of Mastercard North America; Ed Mierzwinski, senior director of the Federal Consumer Program at U.S. PIRG; and Bill Sheedy, senior advisor to the chairman and CEO of Visa.

Sen. Dick Durbin (D-Ill.), who serves as chair of the Senate Judiciary Committee, delivered an opening statement during the hearing which was held to examine swipe fees — also known as interchange fees — and other anticompetitive practices in the credit and debit card industries, and how rising fees lead to higher consumer prices for goods and services and add to inflationary pressures.

"Visa and Mastercard control around 80 percent of the credit and debit card market. And they have established a system of fees and rules that apply to every transaction involving cards issued by the thousands of banks in the Visa and Mastercard networks," Durbin said, adding the banks let Visa and Mastercard set the fees on their behalf, so the same schedule of fee rates applies for all banks in the network.

"When Visa and Mastercard raise interchange fees, banks want to issue more cards because they make more on each swipe.  And Visa and Mastercard profit when there are more swipes, because they take their own cut, called a network fee, from the merchant on each swipe. But merchants and their customers take it on the chin," he said. "Bottom line: when swipe fees go up, it costs more to use money.  And that cost gets built into the prices that consumers ultimately pay."

Last month, a bipartisan, bicameral letter from Durbin, Sen. Roger Marshall (R-Kan.), Rep. Peter Welch (D-Vermont) and Rep. Beth Van Duyne (R-Texas) was sent to Visa and Mastercard urging them not to move forward with their fee increases. Despite the letter, the global networks went forward with fee increases on April 23.