Many small businesses are feeling a little better now that inflation has subsided and competition for workers has slowed. But profits are increasingly coming under pressure due to the steady adoption of credit cards by consumers.
Jean Christian Baca, owner of Walter’s Hot Dogs in Marmaroneck and White Plains, New York, estimates she currently pays about $50,000 a year in fees associated with processing credit card transactions. But that amount is due to rising card processing rates and more customers paying with cards rather than cash.
“Each year, 3% of all sales are wiped out just from credit card processing,” he said.
Merchants have long been burdened with “swipe fees,” a collective term that businesses pay banks and credit card companies every time a customer swipes. Federal regulations limit debit card swipe fees to 21 cents per transaction, but credit card swipe fees can be much higher.
And businesses are seeing a surge in credit card transactions as many shoppers ditch cash for plastic cards and mobile payment apps. According to a study by the Federal Reserve Board, by 2023 they will account for 32% of all consumer payments in the U.S., up from 24% in 2019. Over the same period, the cash share shrank from 26% to 16%.
American Express, Discover, MasterCard and Visa card spending in the U.S. will increase to $5 trillion in the first half of 2024, up from about $4.98 trillion in the same period in 2023, according to data provided to NBC News by The Nilsson Report. It jumped to $250 billion. Covers the payment industry.
These changes in customer habits are increasing costs for many businesses. In 2023, the most recent year for which data is available, merchants paid an average of 2.26% in swipe fees on transactions using the Visa and Mastercard credit card networks, Nilsson said. Nilsson said the two companies accounted for more than $100 billion of the $172 billion in total U.S. swipe fees in 2023, with Visa accounting for 52% of credit card spending across the four major card networks.
Some of Visa’s fees have increased. On January 1st, the card network increased two of the credit card swipe fees it charges banks and processing companies. The move comes amid growing backlash from critics, including some lawmakers, who say swipe fees are exorbitant and often passed on to shoppers.
“The increase in Visa’s swipe fees will likely ultimately mean higher prices for in-store customers,” said Matt Schultz, chief credit analyst at LendingTree. “It’s unclear how quickly that will happen, but generally speaking, when these fees tend to rise, merchants tend to pass those additional costs on to consumers.”
The Merchants Payments Coalition, an advocacy group backed by major restaurants, retailers and other industry groups, estimates the visa surcharges total $100 million a year.
“This doesn’t seem like a big deal, but it really adds up over time as the value of every transaction increases,” said Merchant Payments Coalition executive committee member and general counsel for the National Association of Convenience Stores. said advisor Doug Canter. .
The Merchants Payments Coalition says it estimates swipe fees will set a record at $172 billion in 2023, costing the average household more than $1,100. The group is pushing for greater transparency in credit card fees, increased competition among networks, and lower fees.
Visa says the changes are aimed at improving its network. Asked by policymakers about some of its swipe fees, the company said: “There is no incentive to set[fees]too high or too low.”
A Visa spokesperson told NBC News in a statement: “We are constantly enhancing our network as more businesses and consumers choose to do business with us. Everything we do is making it more convenient to pay and pay with Visa. It’s designed to be safe, secure, and reliable.
The Electronic Payments Coalition, an advocacy group that supports card networks like Visa, says average swipe fees haven’t changed much over the past decade, even as sales have increased. The group also noted that businesses incur unique costs when handling cash. Duties range from operating a cash register to paying bank account fees.
Different companies handle swipe fees differently. Some stores, like Walter’s Hot Dogs, incorporate the cost into their prices. Some companies are trying to encourage customers to use cash. Patz Deli in Manchester, New Hampshire, charges customers a 4% convenience fee on credit card transactions to cover processing fees and the cost of credit card equipment.
“This is a cost that we don’t necessarily have to incur ourselves because it’s not on our credit card,” owner Pat Burns said. “It’s your choice whether to use it or not, not ours, but we’re the ones who get charged.”
He said the deli introduced convenience fees within the last few years in the face of increasing pressure from taxes, wages and other spending.
“By the time you take home some money at the end of the month, 10 other people have already touched that money,” Burns said. “Just like with credit cards, even a little bit of 3 or 4 percent can go a long way toward keeping a small business afloat.”
Consumer experts recommend using cash for small transactions, using loyalty cards to get the most out of each purchase, and paying in person instead of over the phone if possible. . Telephone transactions often result in higher fees for companies due to security risks.
The fight over swipe fees has reached Congress. The Credit Card Competition Act is a bipartisan bill led by Sen. Dick Durbin (Ill.) and Sen. Roger Marshall (R-Kansas) that aims to increase competition among credit card processing companies. , the Merchant Payments Union insists this is essential.
But the bill has stalled. Several groups supporting banks, credit card networks and credit unions oppose the measure, saying it would hurt small businesses and consumers by limiting rewards.
“Swipe fees are definitely very controversial and have long been a battleground between credit card issuers and networks and merchants,” LendingTree’s Schultz said. “I feel like this fight will only last for a little while longer.”
