Senators grill Visa, Mastercard execs over swipe fees

Senators on Wednesday scrutinized Visa and Mastercard for raising swipe fees on merchants, costs that they say will be passed down to consumers amid surging inflation.

Senate Judiciary Committee Chairman Dick Durbin (D-Ill.), a longtime critic of the credit card giants, called for new rules to inject competition into the credit card industry and prevent “unreasonable” fees during a hearing in which Visa and Mastercard executives answered questions about the swipe fees.

“The credit and debit card systems are not competitive marketplaces,” Durbin said. “It’s a sweetheart deal for the dominant networks, for the biggest banks and for certain cardholders who have ritzy rewards programs, but the average small business and the consumer, they pay the price.”

On April 22, Visa and Mastercard changed their interchange fees, which are tacked onto every credit card transaction to compensate issuing banks and pay for consumer rewards and anti-fraud measures.

Visa reported cutting fees for most small businesses while Mastercard said it lowered fees on transactions below $5, but the changes still amount to a $475 million annual fee hike for merchants, according to an estimate from payments consultancy CMSPI. That’s a relatively small bump for retailers, which already paid $138 billion to accept card payments last year, according to the Retail Industry Leaders Association.

The changes prompted a lobbying blitz from big box retailers and their trade groups urging lawmakers to crack down on what they say are anti-competitive practices by Visa and Mastercard, which together control roughly 80 percent of the credit and debit market.

Their messaging centers on the nation’s 40-year-high inflation. The National Retail Federation estimates that the average American family pays over $700 a year on price hikes to cover swipe fees, a figure that will rise due to soaring inflation, as the fees typically take 1 to 3 percent of each transaction.

“When the price of goods go up, what’s happening is the credit card companies are getting a higher percentage on a higher sale. So that means there’s more costs that we have to bear and pass along to our customers,” Laura Shapira Karet, CEO of supermarket chain Giant Eagle, told lawmakers.

Durbin cited comments on an earnings call from Visa CEO Al Kelly that the credit card giant is a “beneficiary of inflation” as higher costs lead to larger fees.

Democrats on the panel said that swipe fees are the most damaging to low-income Americans, who are less likely to benefit from credit card rewards but are still subject to the same price increases passed onto other customers. They also echoed retailers’ concerns that in most cases, merchants are powerless to negotiate fee rates.

“While some of the really large companies like Amazon and Walmart may be able to negotiate for lower interchange fees, small businesses don’t have that kind of power,” said Sen. Mazie Hirono (D-Hawaii).

Durbin suggested several measures to regulate the industry, such as requiring companies to show consumers how much of their money is spent on swipe fees, prohibiting exclusivity deals that block banks from issuing more than one kind of credit card and preventing fees “from being jacked up to unreasonable levels.”

He noted that the European Union, India, Israel and other countries have instituted limits on interchange fees.

Visa and Mastercard executives at the hearing pushed back on lawmakers’ criticisms and argued that capping interchange fees would have unintended consequences.

“When interchange has been price regulated by governments around the world, you see a narrowing of the issuance of credit cards in those countries, fees to those consumers go up and the features and benefits they get from those cards go down. We think that would be a horrible outcome,” said Bill Sheedy, senior adviser to Kelly.

The credit card executives said that while Visa and Mastercard control a large percentage of the credit card market, that figure doesn’t account for other increasingly popular payment options, such as cryptocurrencies, digital wallets and “buy now, pay later” providers.

“The payments ecosystem has never been more competitive than it is today,” said Linda Kirkpatrick, Mastercard president of North American operations.

Several Republican senators on the panel questioned whether there is sufficient competition in the credit card industry and expressed concern that small retailers are struggling to stay afloat amid surging inflation and supply chain issues. But they noted that swipe fees are not a driver of the nation’s historic inflation.

“If we’re talking about having a meaningful impact on a reduction of consumer prices, there’s a lot of other policies that we have to talk about here. It’s not going to make a big difference,” said Sen. Thom Tillis (R-N.C.), referring to proposals to regulate interchange fees.

Republicans struck a cautious tone about regulating credit card fees, citing a Government Accountability Office study finding that Durbin’s amendment in the Dodd-Frank Wall Street Reform and Consumer Protection Act to cap interchange fees on debit cards prompted banks and credit unions to offer fewer free checking accounts in the years after it was enacted.

“There’s a balancing act here that we need to acknowledge, and that any future action should be carefully considered for possible impact,” said Sen. Chuck Grassley (R-Iowa), the committee’s ranking member.

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