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Credit Card Swipe Fees Continue to Threaten Small Businesses. Congress Should Act.

The higher a credit card's rewards, the higher its fees. For many merchants, the fees are now higher than their profit margins. 

August 5, 2021 3 min read

Opinions expressed by Entrepreneur contributors are their own.

More and more, we are seeing our country’s lawmakers attempt to take on different monopolies in the marketplace to strengthen the free and fair competition that is so important to our economic model here in the United States. Most notably, the leaders of many tech companies have been brought before Congress to answer to charges that they possess monopolies in the online space. Given the major discussions regarding infrastructure currently occurring on the Hill, people are also taking a closer look at monopolies in the utility sector. However, there is one monopoly that has taken hold of the majority of economic transactions in this country, and it's not getting nearly enough attention — and that is the stranglehold that the major card networks, controlled by Visa and Mastercard, have over transactions conducted by nearly all American businesses. 

What most consumers don't know, because it remains hidden from them at the point of sale, is that every time a customer swipes their credit card, businesses are charged a percentage of every purchase in swipe fees, which are set by credit card companies and collected by the banks which issue the cards. On average, these swipe fees cost businesses approximately 2.3 percent of every purchase. But this is just the average. The higher the bonus and rewards provided by credit card companies, the more those companies charge businesses in swipe fees. 

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Small businesses, and even the largest retailers, are being put in a difficult position because these fees are becoming too high for them and their customers to take. For many merchants, the fees are higher than their profit margins. 

As these fees continue to rise, businesses are finding it increasingly difficult to pay for them out of pocket, and have little choice but to pass this cost on to their customers. Since most businesses are hesitant to add a surcharge to credit card purchases alone, fearing that such a practice would alienate customers, many businesses instead choose to raise the price of their products unilaterally across the board, regardless of whether a customer pays with cash, credit, or debit. 

Mastercard and Visa have monopolized the credit card market, which has allowed them to charge merchants exorbitant swipe fees without the fear of being undercut by competitors, raising the costs of goods and resulting in a large invisible tax on every electronic transaction, that not only adversely affects businesses but also burdens everyday American consumers.

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Representatives in Congress should take action and push for real reform regarding these exorbitant fees. Swipe fees are a universal problem that affects nearly every American — and disproportionately hurt small businesses. Fortunately, we have representatives like Congressman Patrick McHenry, Ranking Member of the House Financial Services Committee, who is in a position to create change to help local businesses and has long been an advocate for innovative solutions for American families and small businesses. I am hopeful that Congressman McHenry and other members of the House Financial Services Committee will seriously consider addressing swipe fees this year. 

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