We heard a lot from the presidential and congressional candidates
about keeping taxes low for the middle class and helping small
businesses create jobs. They said nothing, though, about an unknown and
hidden “tax” on the use of credit cards that hurts every consumer and
merchant. It’s called the swipe fee -- the fee that merchants (and,
ultimately, consumers) pay to banks to accept a card.
Even though swipe fees are invisible to consumers, they result in higher prices, even for those who mostly pay with cash and rarely use a card. The only difference between swipe fees and taxes is that the $50 billion in revenue that the swipe fee generates every year goes directly to banks rather than to the government. Every American household on average pays about $427 a year in the swipe fee “tax.”
Banks have a right to charge for the use of their cards and make a profit if they earn it; however, they don’t have a right to price-fix, which is exactly what they are doing. Visa and MasterCard each set the fees for their banks, and none of the banks compete. With the fee hidden, competitive market forces never have a chance to break the fixed prices. That’s wrong and is what makes swipe fees more like an unavoidable, hidden tax on business rather than a legitimate private charge that goes into the cost of doing business.
The swipe fee is the second highest operating expense for merchants, an especially serious burden for small businesses. And it’s the fastest-growing expense these businesses face, rising much faster than, for example, health care costs. While health care has received a lot of presidential attention, swipe fees haven’t. But they should and here’s why:
The cost to swipe cards has tripled in the past decade. Some merchants actually lose money on small card transactions for items such as a cup of coffee or a snack. And the fee is not properly disclosed or subject to competitive market forces. It is a pure power grab by banks that have worked with the dominant credit card companies to take unfair advantage of Americans for years.
When a consumer swipes a credit card, the bank takes 2 to 3 percent of the purchase price. For every $1,000 in credit card purchases, that amounts to $20 to $30. It goes almost always to a giant “too big to fail” bank reaping the benefit. A mere 10 banks get much more than 80 percent of credit card swipe fees. In fact, they use that money to further exploit their dominance over community banks and credit unions. It shouldn’t be that way.
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Even though swipe fees are invisible to consumers, they result in higher prices, even for those who mostly pay with cash and rarely use a card. The only difference between swipe fees and taxes is that the $50 billion in revenue that the swipe fee generates every year goes directly to banks rather than to the government. Every American household on average pays about $427 a year in the swipe fee “tax.”
Banks have a right to charge for the use of their cards and make a profit if they earn it; however, they don’t have a right to price-fix, which is exactly what they are doing. Visa and MasterCard each set the fees for their banks, and none of the banks compete. With the fee hidden, competitive market forces never have a chance to break the fixed prices. That’s wrong and is what makes swipe fees more like an unavoidable, hidden tax on business rather than a legitimate private charge that goes into the cost of doing business.
The swipe fee is the second highest operating expense for merchants, an especially serious burden for small businesses. And it’s the fastest-growing expense these businesses face, rising much faster than, for example, health care costs. While health care has received a lot of presidential attention, swipe fees haven’t. But they should and here’s why:
The cost to swipe cards has tripled in the past decade. Some merchants actually lose money on small card transactions for items such as a cup of coffee or a snack. And the fee is not properly disclosed or subject to competitive market forces. It is a pure power grab by banks that have worked with the dominant credit card companies to take unfair advantage of Americans for years.
When a consumer swipes a credit card, the bank takes 2 to 3 percent of the purchase price. For every $1,000 in credit card purchases, that amounts to $20 to $30. It goes almost always to a giant “too big to fail” bank reaping the benefit. A mere 10 banks get much more than 80 percent of credit card swipe fees. In fact, they use that money to further exploit their dominance over community banks and credit unions. It shouldn’t be that way.
Read Full Article>>