Credit card swipe fees hurt small business

When my sister and I launched an online beauty products business in San Antonio in 2019, we knew we would be forced to hand over a slice of every sale to a third party. That’s because Wall Street banks and global credit card networks charge merchants a percentage of the transaction to process payments. And as an online business – unlike bricks-and-mortar stores where at least some purchases are paid for in cash – all of our sales are paid for by card.What we didn’t know was how much these “swipe” fees would skyrocket. Nationwide, credit and debit card swipe fees soared 25% last year alone to a record $138 billion and have more than doubled over the past decade.We currently pay 2.6% of the purchase amount plus 30 cents per transaction when customers use a credit card. When we sell a $40 holiday gift set, for example, that means the banks and card networks take $1.34 off the top rather than us getting the full amount.These fees add up quickly. And like most small retailers, our extremely narrow profit margins allow little margin for error before we end up losing money – and are potentially out of business.We have not increased prices since starting our business. Not after swipe fees rose last year and not after Visa and Mastercard hiked them by $1.2 billion this spring despite being warned by Congress that doing so would “add to inflationary pressure.”We’ve kept prices the same because we care about our customers and know the challenges they face amid today’s rampant inflation. We’ve haggled with suppliers, cut costs and spent less on marketing. But the one cost we can’t control is swipe fees. Banks refuse to negotiate. And since swipe fees are a percentage of the transaction, whatever we do to control other costs, they still take their cut. Against that pressure, we can’t hold off forever.That’s why we welcomed introduction of the Credit Card Competition Act by Congressmen Lance Gooden of Texas and Peter Welch of Vermont.Currently, Visa and Mastercard – which control 80% of the market – centrally price-fix the swipe fees charged by all banks that issue their cards rather than the banks competing to give merchants the best deal. And they block transactions from being processed by other networks that offer lower fees and better security.Under the legislation, the nation’s largest banks would be required to enable credit cards they issue to be processed over at least two unaffiliated networks – Visa or Mastercard plus an independent network like NYCE, Star or Shazam, or even American Express or Discover. Merchants would then decide which to use, forcing networks to compete over fees, service and security.Competition would save merchants $11 billion a year, with most of the savings passed on to consumers. And the Federal Reserve says independent networks have one-fifth the fraud of Visa and Mastercard’s networks, further benefiting consumers. The bill applies only to financial institutions with $100 billion in assets, so community banks and virtually all credit unions are exempt. Credit card rewards would be protected, since those are determined by banks that issue cards, not the networks that process transactions. And network routing is a back-office process, so consumers would keep their current cards.Soaring credit card swipe fees are unsustainable, and we aren’t the only retailers affected: We proudly joined scores of small business owners who traveled to Washington recently to explain this issue to members of Congress.Swipe fees are most merchants’ highest operating cost after labor – far too much to absorb – and drive up consumer prices by about $900 a year for the average Texas family, according to the Merchants Payments Coalition. It’s time for Congress to pass the Credit Card Competition Act.Toni Lee Jimenez is co-founder of Chica Beauty, an online seller of beauty products based in San Antonio.

Rising transaction fees are putting a big dent in small businesses' bottom line. (Photo: Jenny Kane, AP)

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Credit card swipe fees hurt small business

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