Conservatives have long championed small, Main Street businesses and we still do. They are engines of job growth and demonstrate what is best about our competitive American economy: entrepreneurship, ingenuity and – Washington take note – thrift.
But these small businesses such as the roadside diner, the neighborhood dry cleaners and the gas station down the street are fighting an unfair and unnecessary challenge that threatens their viability; swipe fees. Such fees cost merchants and consumers more than $30 billion each year.
Every time a customer swipes a credit or debit card to make a purchase, that business pays an interchange fee to the bank that issued the debit or credit card as well as network fees to the credit card company. For the last ten years this cost of doing business has been a merchant’s fastest-growing expense. On average, these fees have become the second-largest operating cost. For some, the fees paid approach their labor costs. American businesses pay the highest swipe fees in the world. Compare that with Australia, where the rate is one fourth what our businesses are paying, or Europe where the rate is roughly one third.
Credit and debit card swipe fees are centrally fixed by the dominant credit card companies so that every bank in America charges exactly the same schedule of fees. This price-fixing avoids competition and inflates costs. What’s worse is that for years, these fees have remained hidden. No competition and no transparency are a lethal combination for consumers and merchants alike.
My own small business experience taught me the importance of hard work and the value small employers bring to a community. I understand the challenge of meeting payroll, balancing your books and the thousand other considerations that come with being a business owner. Too often misguided government oversight and regulation hamper a business’ growth, but here a lack of good policy has stacked the deck against business. It’s time for Washington to consider the implications on Main Street and – if needed – revise policy so our small businesses can thrive.
In 2010, Congress made some progress reforming out-of-control debit card fees when lawmakers insisted on transparency and competition in the way swipe fees on debit cards are assessed. The law, aspects of which are being implemented by the Federal Reserve and the Department of Justice, saved Americans almost $9 billion in its first full year through lower interchange fees, and nearly $6 billion of those savings were passed on to consumers. These savings have positive economic effects. Consumers expanded their consumption and purchases, which supports the creation of new jobs. Similarly, the savings for merchants lead to more purchases, investments and hiring.
However, the new rules also allowed an increase on fees for small debt transactions – those under $10. When you consider that a cup of coffee, a newspaper at the airport or a quick lunch make up $100 billion of all debit and credit transactions every year, and you begin to see how this hurts retailers.
Most small businesses survive on profit margins of two or three percent, yet the price-fixed fees charged on payment cards carry profit margins of more than 1,000 percent. Conservatives are, and should be, skeptical to intervene, but we should also take action to ensure our economy allows small businesses to succeed and maximizes the benefits they bring every community. For too long, payment cards have been a necessary detriment for Main Street merchants and everyday consumers. That should change. Bring competition and transparency to credit card swipe fees.