Payment card interchange, a major factor of the “swipe fees” that average about 2% of each sale, is in the news again as lawmakers and regulators react to claims that the pricing of card payments is unfairly controlled by card networks Visa and Mastercard.
The existing systems supporting U.S. swipe fees are coming under pressure from at least three directions on political and legal fronts, briefly described below.
But merchants are also using technologies and policies to offset the cost of payment card swipe fees, helped by the rise of faster payments, new approaches to merchant-funded rewards and new U.S. regulations encouraging open banking.
“Merchants surprisingly have a lot of levers to push and pull when it comes to controlling how much they pay in payment card interchange,” said Eric Cohen, CEO of Merchant Advocate, a consulting firm based in Colts Neck, New Jersey, which counsels merchants on managing card-processing costs.
Sen. Dick Durbin, D-Ill., and Roger Marshall, R-Kan., are co-sponsoring the Credit Card Competition Act, which would give merchants a lower-cost credit card processing option by requiring banks with assets of $100 billion-plus to offer merchants a choice of two unaffiliated card networks that aren’t both Visa or Mastercard.
Separately, the Federal Reserve plans to vote this week on revising debit card interchange fees the agency set more than a decade ago as part of the 2010 Dodd-Frank Act, affecting banks with at least $10 billion in assets.
On another front, the Supreme Court last month agreed to hear a case brought by a North Dakota convenience store challenging the statute of limitations for the Fed’s Regulation II rule enacted in 2011 to implement debit interchange rates as a result of Dodd-Frank.
Visa and Mastercard argue that swipe fees cover the cost of payment card acceptance, technology and fraud. But card-network rules don’t prevent merchants from exploring alternative strategies to reduce the effect of credit and debit card swipe fees. Here are five examples.