The more things change, the more they remain the same. That would be the case with credit card interchange fees that have been at the center of a long-running battle between merchants and credit card networks and their bank issuers. Card networks were poised to increase interchange fees this year, but the Covid-19 pandemic has postponed that to a future date.
Merchants, especially small businesses, that don’t have the negotiating leverage of high payment transaction volumes feel the most pain. Expect that to intensify as more non-cash payments and e-commerce transactions during Covid-19 ring up higher interchange fees.
The following Wall Street Journal article, excerpted below, reports more on this topic:
In Silver Spring, a Maryland suburb of Washington, D.C., cash is becoming a rarity as consumers increasingly rely on credit cards, apps and online purchases during the pandemic. For Bump ’n Grind, an independent coffee and vinyl record shop, that is a growing burden.
The shop, which roasts its own coffee beans, spent less on green beans last year ($12,827) than on the card-processing fees ($18,645) it pays to the financial institutions that enable cashless payments. “That’s depressing,” said owner David Fogel. “All you know is at the end of the month they’re pulling out X thousands of dollars.” The store is a microcosm of tensions sparked by the growing and largely hidden interchange economy: the stream of fees merchants pay to banks. The fees help drive the payments system. Merchants hate them; banks love them.
When you buy something with a credit card, the merchant often remits around 2% of the price to the bank that issued it. The fee can be higher, at times around 3%, on more generous reward cards. The bank returns some of these “interchange fees” (also called swipe fees) to the cardholder in the form of rewards, including cash back, points or airline miles. (Separate, smaller fees are paid to the payment networks, such as Visa Inc. and Mastercard Inc., and to the financial institution that helps process the transactions.)
Because retailers’ profit margins are slim, they pass some of the fees to customers through higher prices, according to the National Retail Federation.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group