Swipe fees are the charges credit card companies set and banks levy on merchants for accepting their credit cards. According to recent documents, the processing expenses at the Army & Air Force Exchange topped out last year at $86 million, critical profits that the military wants to funnel back into its own community to bolster its quality-of-life fund.
The predicament the military finds itself in shines the spotlight yet again on the broken system in which the swipe fees for credit cards are determined. The costly and deceptive practice is nothing short of price-fixing. Here’s why:
Visa and MasterCard control 80% of the credit card market. Given their widespread presence, they have been able to manipulate the system so that the banks that issue their cards agree to charge the same swipe fees in concert with Visa and Mastercard even though they set their own prices on every other fee and rate. All of this is secretly done behind closed doors, preventing merchants from being able to shop around and get better deals. This kind of collusion is illegal in other parts of our economy and it should be here as well.
The fall out from this corrupt scheme has resulted in consumers paying more for goods and services regardless of whether they are paying with cash or by check or credit card while businesses, particularly small ones, are unable to grow and many struggle to even stay open.
For decades, merchants have been carrying the heavy burden of swipe fees, paying up to 4 percent of each sale back to the credit card company to ostensibly cover the cost of processing the transaction. Business owners have had little to no recourse to avoid the fees, which have become a significant operating expense rivaling salaries and employee benefits. The fees in 2011, for instance, rose to $30 billion for credit cards and $20 billion for debit cards. Keep in mind that the actual cost to process a credit card transaction is approximately 4 cents, no matter the total amount of the transaction.
Credit card swipe fees have more than tripled in the last decade even in the face of new technology and have driven up prices for the average household by more than $250 per year. Moreover, swipe fees in the U.S. are higher than any other country in the industrialized world, about eight times higher than in the European Union, and there is nothing currently on the books to stop them from rising or bring relief to consumers and Main Street businesses.
The military’s frustrating experience with escalating credit card swipe fees is just another chapter in this long battle to level the playing field and bring transparency and competition to the marketplace. But until lawmakers close the opaque loophole that the banks are unfairly profiting from, nothing is going to change. And in the absence of any meaningful reform, consumers and merchants of all stripes will continue to feel the pinch and pay the price.
