Merchants claiming that inflation is exacerbating their ongoing woes as credit and debit card interchange fees continue to rise will air their grievances in a Senate Judiciary Committee hearing on Wednesday with top financial services industry executives.
Sen. Dick Durbin, D-Illinois, is convening the hearing in response to a rising chorus of complaints from merchant industry representatives on long-simmering issues including recent credit card interchange hikes Visa and Mastercard implemented. Merchants also claim that debit card interchange pricing doesn't reflect the changing mix of electronic payments.
Merchants claim payment card interchange rates are anticompetitive and they have long sought government intervention to enable negotiation with the card networks to set rates.
On the merchants’ side, speakers scheduled include Laura Shapira Karet, chair and CEO of Pittsburgh-based supermarket chain Giant Eagle, along with Doug Kantor, general counsel for the National Association of Convenience Stores, and Ed Mierzwinski, senior director of consumer programs at U.S. PIRG.
Financial services representatives on the docket include Bill Sheedy, senior advisor to Visa’s Chairman and CEO Al Kelly; along with Linda Kirkpatrick, Mastercard’s president, North America. Charles Kim, executive vice president and CFO at Kansas City, Missouri-based Commerce Bancshares, will also speak at the hearing.
Merchants for years have complained that credit card interchange rates are unfair, and recent inflation is exacerbating the situation and cutting into their profits. Separately, merchants have argued over the last year that debit card interchange rules that were designed a decade ago when most debit transactions were conducted in stores no longer reflect the marketplace, which has shifted sharply toward online transactions.
Payment card interchange is the fee paid to card-issuing banks with each credit or debit card transaction, to ensure security and to help cover the cost of any fraud as payments flow over the card networks between the merchant’s and consumer’s bank accounts.
Each of the major networks sets a unique interchange rate based on a percentage of the sales price plus a flat fee, resulting in an average interchange rate of about 2.2% in the U.S., according to the Merchants Payments Coalition. The merchant’s bank typically collects the fee when the card is swiped and passes it to the bank that issued the card. In addition, the card network involved in the transaction separately earns a small fee of about 0.05% of the sale.
Debit card interchange is about six times lower than credit card interchange, because there is less risk with transactions that come directly out of consumers’ checking accounts versus credit cards, where the consumer is responsible for paying the bank at a later date.
Certain loyalty credit cards, especially those that generate cash and travel rewards, have higher interchange rates.
“Visa and Mastercard have price-fixed swipe fees for years and have repeatedly moved to block any innovation or fair play that threatens their hold on the payments market,” said Leon Buck, vice president for government relations, banking and financial services at the National Retail Federation, in a press release.
“Visa and Mastercard need to compete like any other business,” said Anna Ready Blom, director of the National Association of Convenience Stores, who also serves on the Merchants Payments Coalition’s executive committee, in a separate press release on behalf of the merchants' group.
Several lawmakers in April co-signed a letter to Visa and Mastercard asking the card networks to cancel a swipe-fee increase planned for April that had been delayed twice due to the pandemic, but the boost took effect as planned.
Visa and Mastercard in March disclosed some
Separately, the American Bankers Association last week recommended that the Federal Reserve withdraw changes to debit-card-routing rules it proposed last year. To account for the surge in e-commerce transactions triggered by the pandemic, the Fed last year proposed expanding the Durbin amendment — a part of the Dodd-Frank Act that caps in-store debit interchange for cards issued by banks with more than $10 billion of assets — to also cover online transactions.
The ABA contends the Fed’s proposed plan would force banks with less than $10 billion of assets to begin accepting so-called PIN-less transactions, which most are not equipped to handle, exposing them to higher costs and risks.
The ABA suggested that if the Fed makes a compelling case for expanding the Durbin amendment, it could propose new changes after exploring the impact on smaller institutions, as required by the law.
Visa said in a statement it welcomes the opportunity to appear before the committee to explain its role in the payments industry.
"We recently took action to reduce interchange rates for 90% of U.S. businesses by 10%, and we continue to invest heavily in our network to enable secure, efficient transactions between consumers, merchants and financial institutions globally," Visa noted in the statement.
