The issue
When consumers use a credit or debit card to make a purchase, banks and card networks like Visa and Mastercard charge retailers a hidden “swipe fee” to process the transaction. For credit cards, the fees average about 2% of the transaction but can be as much as 4% for some premium rewards cards. Fees for debit cards from the nation’s largest banks are capped by the Federal Reserve at 21 cents per transaction plus 0.05% of the transaction amount, but cards from small banks are exempt. Together, credit and debit card swipe fees cost retailers and their customers more than $160 billion a year.
After several years of quiet, this issue is back in the spotlight, with legislation introduced in Congress to address credit card swipe fees and the Federal Reserve clarifying rules for debit card swipe fees. NRF is continuing to lead retailers’ efforts to bring transparency and competition to the payments market.
Why it matters to retailers
Applied to millions of transactions each day, swipe fees are most retailers’ highest operating cost after labor, driving up consumer prices by more than $1,000 a year for the average household and hurting retail sales because consumers buy less when prices go up. Swipe fees have grown from about $20 billion a year when NRF began tracking them in 2001 to $160.7 billion in 2022, according to the Nilson Report. Despite recent changes, card industry contracts, rules and practices still make it difficult to offer a cash discount, meaning most customers pay the credit card price – including the swipe fee – regardless of whether they use a card or not. The issue has been exacerbated by the increase in online shopping during the COVID-19 pandemic because virtually all ecommerce purchases are paid for with credit or debit cards. Swipe fees are higher for online purchases than in-store purchases, and most buy online, pick up in-store and curbside delivery purchases are subject to online rates as well. And as a percentage of the transaction, swipe fees go up automatically as prices increase, creating a multiplier effect for today’s rampant inflation.
NRF advocates for swipe fee reform
NRF has fought for fair swipe fees for two decades, saying the current system lacks transparency and competition and that banks’ cost of processing transactions has gone down as technology has improved. The card industry refuses to negotiate over the fees, and NRF has argued in court and before Congress that the way Visa and Mastercard set swipe fee schedules followed by virtually all banks that issue their cards violates federal antitrust law. NRF helps lead the Merchants Payments Coalition, a group formed to seek fair swipe fees.
A dozen years after Congress addressed debit card swipe fees, lawmakers finally turned their attention to credit card swipe fees. The Credit Card Competition Act was introduced in the Senate in July 2022 by Senators Richard Durbin, D-Ill., and Roger Marshall, R-Kan., and in the House in September by Representatives Peter Welch, D-Vt., (now a member of the Senate) and Lance Gooden, R-Texas.
The bill was reintroduced in June 2023 with four additional sponsors: Senator J.D. Vance, R-Ohio, and Representatives Zoe Lofgren, D-Calif, Tom Tiffany, R-Wis., and Jeff Van Drew, R-N.J. NRF said “we are confident this is the year” that Congress will take action.
Under current practices, Visa and Mastercard – which control 80% of the market – centrally price fix the swipe fees charged by banks that issue their credit cards rather than the banks competing to offer merchants the lowest rates. They also block competition by restricting processing of transactions to their own networks. The new legislation would require that the nation’s largest banks enable credit cards to be processed over at least two unaffiliated networks – Visa or Mastercard plus an independent network like NYCE, Star or Shazam. American Express or Discover could also be the second network, but not networks controlled by a foreign government like China’s UnionPay. Banks would decide which two networks to enable, but retailers would decide which of the two to use. That means networks would have to compete over fees, service and security, with payments consulting firm CMSPI estimating that retailers and their customers would save at least $15 billion a year.
By making networks compete, NRF said the legislation “will make a huge difference in bringing these fees under control and will strengthen the security and reliability of the credit card system at the same time.”
Introduction of the bill came after Durbin, who chairs the Senate Judiciary Committee, held a 2022 hearing on “Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems.” Senators from both sides of the aisle questioned senior Visa and Mastercard executives on their swipe fee practices and heard from witnesses representing merchants and consumers. NRF submitted a letter citing concerns from small retailers and saying small businesses are hardest hit by the fees
Meanwhile, the Federal Reserve issued long-awaited new regulations in October 2022 confirming that retailers’ right to choose which networks process debit card transactions applies the same online as in-store. The right was established as part of the Durbin Amendment, the landmark 2010 law passed by Congress that also set the 21-cent cap on debit card swipe fees. Similar to the pending Credit Card Competition Act, the measure required that debit cards issued by large banks be able to be processed over at least two unaffiliated networks, ending Visa and Mastercard’s longtime monopoly.
Together, the cap and network routing provisions have saved retailers and their customers more than $9 billion a year. But while routing choice is now well-established for in-store transactions, the Fed found that banks have enabled fewer than half of debit cards to be routed to networks other than Visa or Mastercard when used online. Most contactless and digital wallet debit transactions are also restricted to Visa and Mastercard’s networks. Under the new regulations, which took effect on July 1, 2023, banks must enable at least two unaffiliated networks regardless of where debit transactions take place and regardless of whether traditional cards, contactless cards or digital wallets are used.
NRF welcomed the clarification, saying the Fed “has declared once and for all that a debit transaction is a debit transaction no matter where it takes place and that merchants have the right to choose the network that offers the best service, strongest security and most reasonable fees.” The move came three years after NRF submitted a white paper to the Fed and the Federal Trade Commission outlining ”ongoing misconduct by Visa and Mastercard that inhibits merchant choice.”
In addition to the new regulations, the FTC has reportedly investigated whether Visa and Mastercard’s use of tokenization of card numbers interferes with online debit card routing. In December 2022, the agency ordered Mastercard to share data that competing networks need to process online transactions made with Mastercard debit cards. NRF said the order “goes hand in hand” with the earlier ruling that debit routing choice applies the same online as it does in-store.
NRF is also pushing to see that long-pending class-action litigation over Visa and Mastercard credit card fees goes beyond just a monetary settlement to also address the way the fees are set. A $5.6 billion federal antitrust settlement reached in 2019 and upheld in 2023 by the 2nd U.S. Circuit Court of Appeals deals only with monetary damages, but a judge has allowed NRF to intervene in related litigation over how the fees are set.