Visa and Mastercard may increase credit card fees

According to The Wall Street Journal, credit card companies are planning to implement fee increases starting in October and April.

These increases primarily target online purchases, potentially resulting in US merchants paying an additional USD 502 million in fees each year. CMSPI, a consulting company working with merchants, estimated that network fees would account for slightly over half of this revenue, while the remainder would come from interchange fees, also known as swipe fees.

However, Mastercard officials mentioned there are no changes to Mastercard interchange rates. The only change referenced is an existing service Mastercard provides to acquirers, who can activate it as needed to drive a safer and more streamlined checkout experience for consumers.

Merchants are charged interchange fees when customers make credit card payments. Despite being hidden from shoppers, these fees have become a major point of contention between card networks and merchants of all sizes, from large online retailers to small local businesses.

In 2022, US merchants paid approximately USD 93 billion in credit card fees to Visa and Mastercard, as reported by the Nilson Report. This marked a significant increase from the USD 33 billion paid in 2012. To mitigate the impact of these fees, some small businesses have started offering discounts to customers who pay with debit cards, cash, or checks.

Legislation introduced to address credit card fees and help merchants

Recognising the concerns surrounding credit card fees and their impact on businesses, lawmakers in both the House and Senate have recently reintroduced legislation aimed at granting merchants the ability to process Visa and Mastercard credit cards through alternate networks. Currently, a similar rule already exists for debit cards.

The proposed bill holds the potential to lower the fees that merchants are obligated to pay. The House and Senate bills have been referred to their respective committees for further consideration.

The attention to card fees stems from the fact that card networks such as Visa and Mastercard determine the fees merchants must pay, with network fees going directly to Visa and Mastercard, while interchange fees are paid to the issuing bank. Visa, Mastercard, and major banks argue that these fees are necessary to cover costs associated with fraud prevention and innovation, often utilising the revenue generated from interchange fees to fund popular credit card rewards programs. As the debate continues, the outcome of this legislation has the potential to reshape the credit card fee landscape and provide relief to merchants burdened by high processing costs.