Retailers wage last-ditch battle against credit giants over swipe fees

Retailers are mounting a last-ditch push for a bipartisan bill to crack down on credit card swipe fees paid by businesses.   

Their aim is to slip the legislation into the National Defense Authorization Act (NDAA), which senators briefly discussed Tuesday, prompting alarm from financial services giants that say the bill would upend Americans’ credit card rewards. 

The Credit Card Competition Act would empower merchants to choose alternative credit card networks to process payments that aren’t run by industry titans such as Visa or Mastercard — which together control around 80 percent of the U.S. market — as a way to boost competition and bring fees down. 

The bill, introduced by Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kan.), would save U.S. businesses at least $11 billion per year, according to payments consulting firm CMSPI. 

Retailers have long complained that interchange fees — which average roughly 2 percent of each transaction — eat into their already thin margins while credit card and banking giants bring in huge profits. 

American merchants spent $105 billion on those fees in 2021, an increase of 25 percent from the previous year as consumer spending exploded, according to the Nilson Report. Most retailers pass those costs onto their customers, the bill’s supporters say. 

“Small businesses are asking their customers to pay with cash because they can’t afford these high swipe fees,” said Leon Buck, vice president of government relations at the National Retail Federation. “We need freedom to negotiate. That’s what this is about.” 

The legislation has sparked a lobbying battle in the nation’s capital between two closely intertwined sectors. 

Financial services companies are warning that the bill could spell the end of credit card rewards. 

Banks that issue credit cards take in the bulk of swipe fees to pay for reward programs and to cover processing and fraud protection costs. Banks would make up that lost revenue by cutting rewards or implementing new fees, critics say. 

“You can’t take massive quantities of revenue out of the system and not have consequences for the consumer,” said Jeff Tassey, chairman of the Electronic Payments Coalition, which represents Visa, Bank of America, Navy Federal Credit Union and other financial services firms. 

Retailers say that credit card rewards would remain because banks rely on them to attract customers, and $11 billion is a fraction of the annual revenue banks generate from swipe fees. 

But the Electronic Payments Coalition points out that debit card rewards largely disappeared — along with many free checking accounts — after a Durbin-led measure in the 2010 Dodd-Frank Act capped swipe fees for debit cards and mandated alternative network options. 

The coalition is telling lawmakers that the effort is largely spearheaded by big retailers such as Walmart and Target, which would receive huge savings from just a 1 percentage point reduction in swipe fees.  

Big box stores are trying to compete with financial services giants by offering their own cards, money transfers and “buy now, pay later” options, Tassey said. Walmart is planning to launch its own checking account service for its employees and customers.  

“This legislation gives them a chance to get another basis point or two and also hobble a competitor on the way in,” Tassey said. “It’s very, very cynical.” 

Still, lawmakers are eager to scrutinize credit card giants, which reported record profits this year amid soaring inflation while other industries struggled.  

During a hearing on the issue earlier this year, Durbin, a longtime critic of the industry, cited earnings call comments from Visa CEO Al Kelly that the company is a “beneficiary of inflation.” Other senators lamented that small businesses don’t have the power to negotiate down swipe fees as they face mounting costs. 

“Visa and Mastercard are seen as a duopoly that is not doing anything right now to help consumers and retailers,” Buck said.  

The National Federation of Independent Business, a right-leaning small-business group, has thrown its weight behind the Credit Card Competition Act, along with the Independent Restaurant Coalition, which represents 500,000 independent restaurant operators. 

“Our members are still struggling, and this legislation would immediately help the entire industry keep their doors open,” Erika Polmar, executive director of the restaurant coalition, wrote in a letter to congressional leaders last week.  

Durbin and Marshall are offering the bill as an amendment to the NDAA, along with a separate amendment requiring the federal government to issue a report on the surcharges military veterans are forced to pay at military commissaries to cover swipe fees. 

The Senate on Tuesday adopted a docket of 75 amendments to their NDAA draft package that did not include the Credit Card Competition Act. 

The bill faces several roadblocks. It’s one of more than 900 proposed amendments to the NDAA, isn’t related to military spending, and Durbin and Marshall are not members of the Senate Armed Services Committee that oversees the massive spending package.  

“It’s basically a procedural Trojan horse,” said Tassey, of the Electronic Payments Coalition. “They know this bill is too controversial to get it through regular order.” 

Congress will resume work on the NDAA after the election and aim to pass the defense bill in the lame-duck session. 

“This is just the beginning of debate over the NDAA and there are many senators who are very concerned about the impact of high swipe fees on veterans who have bravely served their country,” Doug Kantor, general counsel at the National Association of Convenience Stores, said in a statement.