Swipe fees are not to blame for rising prices [opinion]

Americans swipe their debit cards at restaurants, merchants and other businesses an estimated 38 billion times a year.

With customers frustrated by soaring prices at the checkout counter, the nation’s largest big-box retailers and convenience store chains are doing all they can to avoid responsibility, blaming credit card “swipe fees” for skyrocketing consumer costs.

It’s nothing more than another marketing gimmick meant to trick consumers.

Swipe fees, also known as interchange fees, are minimal — as low as two to three pennies on the dollar — and are often lower than the costs associated with handling cash.

These fees cover essential card servicing expenses like statements, card issuance, customer service, fraud prevention and protection and credit monitoring. These fees also contribute to credit card rewards for consumers.

Retailers that choose to accept electronic payments — such as credit and debit cards, or mobile payments — do so for the benefits they bring, such as the opportunity for higher sales, a larger customer base, reduced risk compared with handling cash, fewer bounced checks and guaranteed payment.

In fact, because of consumer demand, merchants are increasingly moving away from cash and check acceptance. Airlines, grocery stores, restaurants and other industries have successfully adopted cashless models, and consumers like the convenience of shopping with a card.

But that convenience does not come at a higher cost, and claims that electronic payment systems are behind rising costs simply do not stand up to scrutiny.

The truth is that retailers are riding higher prices to record profits. While retail prices have experienced a historic 13% increase over the last two years, interchange rates have remained flat for an astonishing seven-year period.

So, when retailers raise concerns about increased credit card processing fees, they are protesting an expense directly attributable to increased sales. In other words, their businesses are doing better.

And, despite merchant group claims, data show that credit card interchange fees are not among the top expenses for small businesses.

According to a 2020 study by the National Federation of Independent Business, the top expense concerns for small businesses include health insurance, federal and state taxes on business income, property taxes, cost of supplies, inventories, and liability insurance.

The average small business manages costs that include rent, employee wages and benefits, taxes, advertising, inventory, utilities, insurance, cost of goods sold, theft, and cost of managing cash.

So, what’s the real deal?

Big-box retailers and convenience store chains are using soaring consumer prices as an excuse to increase their margins, pushing legislation that would exclude swipe fees for retailers on the sales tax portion of credit and debit transactions.

Right now, when a retailer makes a sale, the system recognizes only the final purchase amount on which the swipe fee is based and does not transmit information regarding the product sold nor the amount of sales tax collected.

The largest corporate megastores stand to realize millions in savings by excluding the sales tax from fees. The burden of any massive system redesign would unfairly fall on small businesses, and consumers would see no savings at all.

Major retailers and large grocery and convenience store chains continue to wrongly blame elevated swipe fee costs as alleged price gouging by card networks, banks and credit unions.

The reality is that the increase in swipe fees is a direct outcome of the widespread adoption of electronic payments by consumers and merchants for daily transactions, driven by their speed, convenience and safety.

Government intervention has no place in swipe fees, as it undermines how electronic payments serve and protect consumers while also disrupting a complex ecosystem crucial for the economy to operate and thrive.

Kevin Shivers is president and CEO of the Pennsylvania Association of Community Bankers.  Duncan Campbell is president and CEO of the PA Bankers Association. Patrick Conway is president and CEO of the CrossState Credit Union Association.