Last week, after hearing scratching in the walls and noticing mouse droppings under the kitchen sink, my girlfriend called an extermination service. The guy who introduced himself – nervous, bearded, with a rural Maryland accent – seemed to know his stuff and certainly wasn’t shy about talking about it. He said he likes his job – better paid than his old job, a farmer – but he has a few complaints.
First, he frequently encounters snakes when snooping around crawl spaces, and he’s not a fan of them (I warned him there are ratsnakes in our house). Second, he is vexed by state regulators who no longer allow him to kill snakes or other creatures. “They redefined them as ‘wildlife’,” he sneered. And third, after asking that we pay by check instead of card, he went on a lengthy rant about the high transaction fees credit card companies charge small businesses. His five-person company, he said, paid $26,000 in “sweeping fees” last year.
It turns out that the day the exterminator came out, the Senate Judiciary Committee held hearings on this swipe fee issue. President Dick Durbin scheduled the hearing after Visa and Mastercard, which control more than 80% credit card transactions, imposed a $1.2 billion increase in swipe fees last month. This scam is on top of the additional $27 billion in credit and debit card processing fees US merchants paid in 2021 compared to 2020 (a 30% increase), according to one of the witnesses, Doug Kantorgeneral counsel for the National Association of Convenience Stores.
Swipe fees, Kantor explained, “rise with every dollar of inflation” and act as an “inflation multiplier,” forcing retailers to raise prices “to keep up with the fee spiral.” In its last two earnings calls, he added, Visa has made it clear that it is “a beneficiary of inflation” and that inflation is “a good thing for us.”
The central problem, Kantor and other witnesses said, is a lack of competition. In theory, the thousands of banks that issue credit cards could offer merchants lower swipe fees to win their business, just as they offer lower interest rates and other perks to compete for consumer business. . Visa and Mastercard, however, use their market power to force all banks to charge the same fees.
In addition, the complex tariff schedules demanded by the duopoly are higher for small businesses because tariffs are partly volume-based. “Small retailers with a few dozen transactions per day pay a higher rate than national retailers with millions of transactions,” the National Retail Federation noted in a statement. letter to the committee. “Fees are also higher for e-commerce transactions, which have become increasingly important for smaller retailers due to the shift to more online shopping since the start of the pandemic.”
The behavior of Visa and Mastercard resembles classic violations of antitrust law. Indeed, the Department of Justice and the Federal Trade Commission have filed antitrust lawsuits against the credit card giants. These cases, however, limited the market power of firms only slightly. Much more vigorous prosecution is needed.
Congress could help by passing legislation requiring greater competition in the swipe fee market. A provision of the Dodd-Frank Act of 2010, author by Durbin himself, has stimulated competition and moderate fee increases in the debit card market, but the law did not apply to credit cards. At last week’s hearing, there was talk of revisiting this provision, even from Republicans.
Clamping down on credit card swiping fees is precisely the kind of action that could attract the attention of our exterminator and small business owners like him. In his case, even that might not convince him to vote Democratic. His crack on regulations made us think he was a Trump guy. Still, millions of small businesses are being ripped off by Mastercard and Visa. They could be spurred on by signals that Democrats understand their plight and are addressing it.
Alas, hardly any of them probably even heard of last week’s hearings because, apart from a story in Call, it got no national media coverage. In the cacophony of other issues – abortion, Ukraine, gas prices – the earnest efforts of congressional Democrats to push bipartisan anti-monopoly legislation through both chambers and the Biden administration to intensify enforcement of antitrust laws against Big Tech and Big Ag Monopolies fail to break through to the public. If the party can’t change that dynamic quickly, it’s likely to be as screwed halfway through as the average small business by the credit card cartel.