Amazon settles Visa fee spat; US merchants challenge fees

By Jeff Domansky

While Amazon and Visa settled a simmering dispute over credit card processing fees, US merchants have ramped up a campaign to convince legislators to examine the impact of credit card processing fees on small businesses.

In November 2021, Amazon had announced plans to stop accepting Visa credit cards issued in the UK beginning January 19, 2022. In October, Visa began charging 1.5% of the transaction value for credit cards and 1.15% for debit card transactions in the UK. These represented a jump from 0.3% and 0.2%, respectively.

While credit cards dominated one-third of US e-commerce spending, Worldpay reported credit card e-commerce purchases in North America decreased by 7% in 2021. Now, US merchants are lobbying for lower fees and credit card companies have a brushfire hands.

Alternate payment options growing

Merchants have a growing number of choices when it comes to accepting payments. Credit card applications have decreased in recent years, and consumers have a wide range of contactless and other new payment options available online and in-store.

These include digital payment options, which snowballed during the pandemic. Digital wallet use by consumers doubled from 3.5% to 7.5% in 2021. Buy now pay later (BNPL) saw steady growth and shows no signs of decreasing anytime soon.

Rob Shavell, CEO of online privacy company Abine, estimates that more than 10 million US consumers use virtual or “masked credit cards. The virtual card lets consumers use a unique, disposable credit card number to make secure credit card purchases.

“They are completely functional in making payments but don’t share any of your real personal financial or billing data with third parties,” he told Bankrate. “You can use masked cards whenever you’re uncomfortable giving out your real debit or credit card information or billing address.”

US small businesses pay higher card transaction fees than big competitors

US credit card processing fees range from 1.5% to 4%, a distinct disadvantage for small businesses, according to the Merchants Payments Coalition (MPC).

In a letter to the US House Committee on Financial Services, MPC noted US banks and payment processors charged “an astonishing $110.3 billion to process card transactions, with credit cards making up the bulk of the total. Credit card “swipe” fees have skyrocketed over the past decade due to the underlying lack of competition in the market.”

The MPC says US card processing fees are among the highest globally, averaging 2.22% per transaction. That’s seven times the maximum European rate despite the higher volume and lower technology costs in the US.

MPC Executive Committee member and National Retail Federation Vice President for Government Relations, Banking and Financial Services Leon Bucksaid small businesses pay higher rates than larger competitors because of lower card transaction volumes.

“Small merchants who want to be part of our nation’s economic recovery have no choice but to accept credit cards, especially with consumers using less cash and the shift to online shopping during the pandemic,” Buck said.

“Small and minority-owned businesses work hard for every dollar they earn and can’t afford to receive only 98 cents on the dollar because of credit card fees. It’s time for Congress to recognize the impact of these fees on Main Street merchants and bring competition to the broken credit card market,” he added.

Credit card competition needed according to MPC

The MPC said consumers pay the same price using cash or credit cards, preventing merchants from offering a discount for cash purchases. The coalition says Visa and Mastercard together control 80% of the credit card market, and merchant fees in 2019 were 88% higher than in the previous decade.

In its letter to Congress, MPC said 98% of retailers employed less than 50 staff, while 18% were minority-owned. The coalition said US merchants pay the highest fees in the world:

“Two players – Visa and Mastercard – hold close to 80 percent of the credit card market. They set the fees that all their banks charge small merchants and the rules with which they must comply. The fees are the same for all the banks that issue each network’s cards, so there is no competition among them on price, leaving merchants with no option but to pay the overinflated fees to participate in today’s economy. The impact of credit card fees has been exacerbated during the pandemic as customers have shifted to online shopping where cash and check are not viable payment options, and credit card fees are even higher than they are for in-store transactions.”

US credit card fee increases coming in April

Visa and Mastercard announced $1.2 billion in fee increases and rule changes set to take effect in April 2022. “The unilateral ability of these two networks to increase fees without regard to the impact they have at a time when small businesses are facing record inflation and supply chain challenges is a clear demonstration of a broken market,” the MPC letter concluded.

MPC estimates businesses could save as much as $11 billion annually with more competition in credit card network choices.

Amazon dominated more than 40% of US e-commerce sales in 2021. Ironically, it may end up helping small businesses gain the attention of Congress about the impact of high credit card transaction fees.

Formed in 2004, MPC represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants. Member trade associations include the National Retail Federation, National Association of Convenience Stores, National Grocers Association, FMI – The Food Industry Association, and the National Restaurant Association among others.