May 29, 2023


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Interchange fees argument stoked up by Merchants Payments Coalition

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Just days after announcing monster revenue updates, the thorny issue of interchange fees paid by merchants to the networks and issuing banks is back in the spotlight.

Interchange fees argument stoked up again

In a letter to the Senate Committee on Banking, Housing and Urban Affairs, Merchants Payments Coalition (MPC), made up of trade associations that represent US retailers, supermarkets, convenience stores, gasoline stations, online merchants and other businesses, has stoked the long burning interchange fee argument back up to the most prominent level in the US.

“On behalf of the Merchants Payments Coalition, we are writing to bring your attention to the recent decision – and subsequent reversal – by Amazon to stop accepting Visa credit cards in the United Kingdom because of the high interchange fees charged to process transactions,” the letter says.

Amazon announced in November that it would no longer accept Visa credit cards in the United Kingdom beginning January 19, 2022, citing high fees charged to process the transactions.

“The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers,” Amazon said in a statement released to the media. “These costs should be going down over time with technological advancements, but instead they continue to stay high or even rise.”

“As a result of Visa’s continued high cost of payments, we regret that will no longer accept UK-issued Visa credit cards,” Amazon said. Amazon said it would continue to accept UK Visa debit cards, which carry a lower fee, and other brands of UK credit cards.

Amazon subsequently backed off the decision this week, telling customers in an email that the ban on Visa cards would not take effect as scheduled and that it was “working closely with Visa on a potential solution.” No reason was given, and the wording suggested that details remained unresolved.

Despite the reversal, Amazon’s move shows how frustrated even the largest retailers are over skyrocketing swipe fees, and the situation is even worse for small retailers.

This is not the first time a major retailer has tried to say no to a major card network, but cards are so dominant today that it is virtually impossible to refuse them as payment.

“Lack of competition lets card networks like Visa and Mastercard and the banks that issue their cards get away with price fixing and other practices that would not be tolerated in any other industry,” notes the letter.

“As bad as the situation is in the United Kingdom, the pain for merchants is far worse in the United States, which has the highest swipe fees in the industrialized world.

Visa’s rates here are four times what they are in the UK, and the total amount collected is more than 100 times as much.

We believe US authorities should look closely at what Amazon has done in the UK and need to be aware that many retailers here feel the same. It’s time to bring about competition that will require the US card industry to play under the same rules as any other business.”

In the UK, merchants are charged an average 0.55% of the transaction amount for purchases made with Visa credit cards, and those charges totalled $369 million in 2020 when converted from British pounds to US dollars, according to payments consulting firm CMSPI.

By contrast, US merchants are charged an average 2.22% for purchases made with Visa credit cards, and those charges totalled $43.5 billion in 2020.

A cap of 0.3% on credit card interchange fees has not applied in the UK since Britain left the European Union. In addition, Visa and its banks in October began charging 1.5% for online transactions between the UK and the EU – about three times the amount charged for domestic UK transactions.

The higher cross-border transactions will cost UK retailers £36.5 million ($48.6 million) a year and UK and EU merchants together £150 million ($199.8 million), according to an analysis done by CMSPI for the British Retail Consortium.

In addition to the far higher fees charged in the United States, Visa’s market dominance is significantly stronger than in the UK.

Visa controls only 39% of the credit card market in the UK, compared with 55% by transaction volume in the US, while its closest rival, Mastercard, accounts for only 23% of the US market.

Together, the two account for nearly 80% of the US credit card market, and swipe fees for Visa and Mastercard credit cards combined totalled $61.6 billion in 2020, up 137% over the past decade, according to the Nilson Report.

The fees are not a Visa or Visa  and Mastercard problem alone. Processing fees for all types and brands of cards totalled $110.3 billion in 2020, up 70% over 10 years, according to Nilson.

At current rates, merchants receive less than 98 cents on the dollar whenever a credit card is used and have to adjust prices accordingly.

Swipe fees are most US merchants’ highest cost after labour and equate to an estimated $724 a year for the average American family, according to CMSPI.

“The amounts have grown unchecked largely because Visa and Mastercard set interchange fees that are followed by virtually all the banks that issue their cards rather than the banks competing to set the lowest fees – a practice that has been repeatedly challenged in court as a violation of federal antitrust law,” states the letter.

“In addition, network exclusivity provisions in their contracts let Visa and Mastercard block independent card processing networks like NYCE, Star or Shazam from processing credit card transactions, preventing competition that could drive down the fees.”

“Merchants want to be heard, but they don’t have the ability to reject either Visa or Mastercard to do so. Instead, they need transparency and competition that would allow market forces to result in reasonable swipe fees where all parties can benefit. Since the card industry has chosen not to compete on its own, it is up to policymakers to find a way to make that happen,” the letter concludes.


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