In 2010, retailers led by NACS earned a hard-fought victory in the debate over swipe fees. The Durbin Amendment was included in the Dodd Frank Financial Reform legislation and ultimately became law. For the first time, retailers had some regulatory protection against runaway swipe fees, at least in relation to debit card transactions. This was not an overnight success by any means. Years of educating legislators preceded the successful amendment. Neither was it the end of the fight. During the decade since the amendment became law, retailers, again led by NACS, successfully fought off a number of attempts to repeal this landmark legislative accomplishment.
While our industry, and all of retail, has enjoyed the protections of the Federal Reserve’s regulation on debit card transactions, swipe fees on credit card transactions are allowed to continue on a rampant upward trajectory with seemingly no end in sight. In fact, both Visa and Mastercard were planning yet another credit card swipe rate increase last year, and this year, they were essentially shamed into delaying the increases until after the pandemic eased.
While many opponents of the Durbin Amendment derisively refer to it as government price fixing, they ignore the true pro-competition nature of the legislation. Yes, the Federal Reserve sets a swipe fee limit on debit card transactions; however, if an issuing bank chooses to set its own rates rather than use the rates set by Visa and Mastercard, the Fed’s cap no longer applies. Unfortunately, no bank has agreed to compete—suggesting that the Fed set the fee limit too high.
Opponents also miss, or more likely choose to ignore, the most pro-competition requirement of the Durbin Amendment. Merchants must be given a choice in the routing of debit card transactions. This requires competition among networks on price, quality and security. Competition and market improvements are things that only Visa and Mastercard seem to dislike.
NACS and our retail allies once again are taking this fight to the halls of Congress. In functioning markets, competitors seek market share by keeping prices low and innovating. The credit card swipe fee market is just the opposite. The major card companies seek to get issuing banks to use their cards by offering higher and higher rates, meaning the banks get more revenue to the detriment of retailers everywhere.
The dominance of the major credit card networks, along with their anticompetitive rules, means that retailers must accept their cards. With swipe fees increasing year after year and U.S. merchants and consumers paying more in fees than the rest of the world combined, something must be done to fix this broken market.
In 2010, retailers led by NACS earned a hard-fought victory in the debate over swipe fees. The Durbin Amendment was included in the Dodd Frank Financial Reform legislation and ultimately became law. For the first time, retailers had some regulatory protection against runaway swipe fees, at least in relation to debit card transactions. This was not an overnight success by any means. Years of educating legislators preceded the successful amendment. Neither was it the end of the fight. During the decade since the amendment became law, retailers, again led by NACS, successfully fought off a number of attempts to repeal this landmark legislative accomplishment.
While our industry, and all of retail, has enjoyed the protections of the Federal Reserve’s regulation on debit card transactions, swipe fees on credit card transactions are allowed to continue on a rampant upward trajectory with seemingly no end in sight. In fact, both Visa and Mastercard were planning yet another credit card swipe rate increase last year, and this year, they were essentially shamed into delaying the increases until after the pandemic eased.
While many opponents of the Durbin Amendment derisively refer to it as government price fixing, they ignore the true pro-competition nature of the legislation. Yes, the Federal Reserve sets a swipe fee limit on debit card transactions; however, if an issuing bank chooses to set its own rates rather than use the rates set by Visa and Mastercard, the Fed’s cap no longer applies. Unfortunately, no bank has agreed to compete—suggesting that the Fed set the fee limit too high.
Opponents also miss, or more likely choose to ignore, the most pro-competition requirement of the Durbin Amendment. Merchants must be given a choice in the routing of debit card transactions. This requires competition among networks on price, quality and security. Competition and market improvements are things that only Visa and Mastercard seem to dislike. NACS and our retail allies once again are taking this fight to the halls of Congress. In functioning markets, competitors seek market share by keeping prices low and innovating. The credit card swipe fee market is just the opposite. The major card companies seek to get issuing banks to use their cards by offering higher and higher rates, meaning the banks get more revenue to the detriment of retailers everywhere.
The dominance of the major credit card networks, along with their anticompetitive rules, means that retailers must accept their cards. With swipe fees increasing year after year and U.S. merchants and consumers paying more in fees than the rest of the world combined, something must be done to fix this broken market.
For many convenience retailers, the swipe fees they pay exceed their pre-tax profits. And, swipe fees are convenience retailers’ second-highest operating cost—less than labor but more than rent and utilities, according to the NACS State of the Industry Report of 2020 Data. U.S. merchants paid more than $90 billion in fees to accept credit cards in 2019 alone, according to a 2020 Nilson report. On Visa and Mastercard credit transactions, the average rate paid in the United States was 2.25% of the transaction amount—more than seven times what merchants pay in Europe.
NACS is seeking to build on the success of the Durbin Amendment through ongoing efforts and fighting for federal protections to correct the existing market failures to ensure competition in the credit card swipe space.
We’ll need your help to get this done. A core strength of our industry in Washington, D.C., is our grassroots engagement. We’ll be calling on you to engage with your specific legislators to reinforce how important this cause is to our industry and to all retailers. Your direct advocacy is the strongest tool we have to move such meaningful legislation.
This fight is just getting under way, stay tuned.