Elliot MacGuire is the manager of The Surf Shanty motel in Dewey Beach.
Americans across the country and right here in Delaware are coming out of a holiday season that saw record-high rates of inflation with little end in sight and little expectation that Congress has a solution up their sleeve for next year.
However, there is a bipartisan, bicameral solution, first introduced last year, that will reduce costs for businesses and consumers by $11 billion a year: the Credit Card Competition Act, a monumental step forward in lowering prices for businesses and consumers alike by addressing a little-known inflation multiplier called swipe fees.
These fees are not transparent to consumers, and you likely won’t see them on your receipts, but every time you use a credit card, the businesses you are purchasing from owe the banks a percentage of that transaction total as a fee.
And it doesn’t matter where you are using your credit card, whether it’s donating to charity, paying your electric bill or when you are shopping at the mall. Every time you use your credit card, that fee is charged to the business and typically runs between 2%-3% of the transaction total.
Those fees add up. Unlike the major financial institutions that charge those fees and whose profit margins run on average 35%, the local grocery store or small business is typically operating with less than 5% profit. That means that any increase in these fees — of which there have been many — puts these small businesses closer and closer to insolvency.
That means, in order to shoulder these swipe fees, which have doubled since 2010 and are the highest in the world, businesses have no choice but to increase prices to cover the fees. So, even if you pay with cash, you are inevitably paying for these fees through higher prices.
The only way to stop these fees from continuing to rise is to finally insert competition into the payments marketplace. Visa and Mastercard, who control roughly 80% of the credit card market, set these fees using their overwhelming market control with no pushback, as the banks who offer their cards and collect the fees use the added revenue to pad their profit margins. This price fixing is bad for consumers, bad for merchants and bad for the credit card system.
Thankfully, the Credit Card Competition Act is a viable solution to ever-rising swipe fees. This bill would require that the largest banks in the nation enable a competitor to Visa and Mastercard to have a chance at handling transactions on their credit cards. This increase in competition would have the added benefit of spurring innovation, as networks compete to provide the best processing services at the best cost.
As we look to the 2023 legislative session, Delaware’s Democratic Sens. Chris Coons and Tom Carper have the opportunity to ensure the Credit Card Competition Act is reintroduced and passed once and for all. Lower swipe fees mean lower prices for consumers and lower overhead costs for businesses, a win-win.
