Kelly O’Hanlon is the director of operations and a partner for Harry’s Hospitality Group, which operates Harry’s Savoy Grill and two Kid Shelleen’s Charcoal House & Saloon locations in Wilmington.
As summer rapidly approaches, Delaware’s more than 100,000 small businesses are preparing for seasonal bumps in foot traffic. Rising operating costs, however, aren’t taking a break from the heat.
From local restaurants like ours to neighborhood retailers, credit card processing fees are expenses that have become a major burden for Main Street. Fortunately, a bipartisan proposal under consideration — House Bill 315 — offers a timely solution.
Credit card interchange fees, also known as “swipe fees,” are 2%-4% taxes that banks and credit card companies levy on merchants every time customers use credit cards to make purchases. While these fees were originally intended to cover the cost of processing transactions, technological innovation has made that process far cheaper.
While “swipe fees” should have come down as a result of this progress, they’ve only exploded.
Just last year, merchants across the U.S. paid roughly $157 billion in credit card “swipe fees,” making them the second-highest operating cost for many businesses after labor. What was once a small processing charge has evolved into an overly lucrative revenue stream for major credit card companies and banks.
For Delaware businesses operating on tight margins, these fees can be a final nail in the coffin. One Wilmington restaurant owner reportedly lost $10,000 to “swipe fees” on tips alone last year. The result? Many businesses are forced to raise prices or go cash-only. But, with nearly 3 in 4 Americans owning a credit card, the latter is hardly an option.
The problem has only worsened due to extreme consolidation in the payments arena. Visa and Mastercard control roughly 80% of the credit card market, giving the two companies enormous leverage over merchants that have little ability to negotiate.
That’s where the Delaware General Assembly can lend a hand. In March, the House of Representatives’ Economic Development/Banking/Insurance & Commerce Committee advanced legislation that would prevent credit card networks from charging “swipe fees” on the tips portion of a transaction.
Right now, credit card fees aren’t limited to the actual cost of goods or services. They’re also applied to parts of transactions that generate no revenue for the business itself. When a customer pays sales tax or leaves a tip at one of our restaurants, we still pay fees on those amounts, despite never keeping a cent of them.
While eliminating credit card fees on tips won’t fix every headache associated with “swipe fees,” the bill would ensure that businesses and their employees keep more of the money they actually earn. Lawmakers in Dover recognize this, which is why the legislation has no shortage of bipartisan support.
Federal lawmakers also have an opportunity to build on those efforts by advancing the bipartisan Credit Card Competition Act. Supported by high-profile leaders ranging from President Donald Trump to Senate Democratic Whip Dick Durbin of Illinois, the bill would rein in “swipe fees” by injecting a healthy dose of free market competition into the payments market.
Specifically, the measure would require the largest banks to include a second processing network beyond Visa and Mastercard on the credit cards they issue. This change would allow smaller credit card networks to compete for a merchant’s business — compelling “swipe fees” to come down across the board.
Analysts estimate that the Credit Card Competition Act could save merchants and their customers over $17 billion annually.
Whether relief comes from Dover or Washington, Delaware’s small-business community is being squeezed by a payments system that lacks competition and transparency. Before the legislative session comes to a close, lawmakers should pass free market credit card reform to give Main Street a fighting chance.
Reader reactions, pro or con, are welcomed at civiltalk@iniusa.org.
