Last summer payment processing giants MasterCard and Visa, along with nine major banks, agreed to a settlement that results in lower “swipe fees” charged to merchants.
However, the reduction in the fees is only temporary, in effect for eight months. The settlement is designed to address complaints that Visa and MasterCard have been unfairly fixing credit card processing fees.
Processing fees are a charge that the credit issuers require from retailers for using credit cards. Unfortunately for retailers, Visa and Mastercard together make up 68 percent of all credit card charges. Retailers haven’t had much bargaining power over the processing fees with just two credit companies making up the majority of purchases.
As part of the settlement, the requirement that merchants not charge less for cash has been lifted in all but 10 states. The idea is that now stores can charge a fee to customers when they use credit cards — but they can’t charge more than the processing costs.
Will Consumers See Higher Fees for Swiping Plastic?
Retailers can add the credit card fee to credit cards, but not to debit cards. [Though in a strange twist, if a retailer wants to add the fee but they also use American Express then they can’t. Amex has a rule where adding the processing fee is allowed but only if it’s done across all cards, including debit cards.]
However, there is some speculation that few stores will add the fee, preferring not to pass the cost on to customers. After all, plastic is now one if the most popular ways to pay for purchases. Adding a charge to customers might make stores less competitive — especially the smaller stores.
Even so, some customers might see increases when they use their credit cards to pay for purchases. Processing costs usually amount to between 1.5% and 3% of the total purchase, so that can make something of a difference.
Some smaller establishments might decide to educate their consumers about the costs, pointing out that it costs more for them to accept credit cards than to accept cash. For some consumers, that might be enough to get them to stop using a credit card — or at least pay with debit instead.
Credit Card Use Likely Affects Everyone
Payment processors have long charged “swipe fees” to merchants that accept their cards.
Since they have been unable to charge special fees to recover the costs, many expect that there is a good chance that these swipe fees have been including in the pricing that stores use anyway, to cover the costs. Even those that pay cash might be paying the higher cost (if stores have been passing on the savings).
For the most part, nothing is likely to change.
However, now stores have the option of charging customers more for using credit cards if they want, and being clear that the extra charge is a fee for credit card use.
There are some that argue that rewards credit cards are not as valuable as thought, since higher costs in general are a consequence of widespread credit card use. If merchants have been pricing in the costs of payment processing all along, then the fact that you are using your credit card to rack up the rewards might not be as profitable as you thought.
This doesn’t mean that you aren’t coming out ahead, but it doesn’t mean that you might not be as far ahead as you would like.
The whole issue of “swipe fees”, retail pricing, and how much consumers use credit cards is one fraught with complexity and misunderstanding. For now, though, all you really need to look for is whether or not you are charged an extra fee for using your credit card.