Texas ice cream shop owner, Victor Garcia, is urging customers to pay with cash instead of credit cards to combat the high fees charged to retailers for accepting card payments. Garcia’s shops paid over $25,000 in credit card fees last year, prompting him to post signs encouraging customers to reconsider paying with plastic. Retailers argue that swipe fees in the US are significantly higher than those in Europe, and the pandemic has increased the number of customers opting to pay with cards rather than cash. As a result, US retailers now pay approximately $160 billion annually in swipe fees, a figure that has risen by more than 50% since 2020.
Lawmakers are now working on a bill to promote increased competition in credit card transaction processing in order to reduce swipe fees. The proposed legislation would require big banks to allow a rival network, other than Visa or Mastercard, to process credit card transactions. However, this has sparked a battle between retailers and the financial sector, with consumers caught in the middle. Swipe fees, or interchange fees, are typically around 2.25% of the transaction amount. Credit card issuers, such as Visa and Mastercard, receive a portion of these fees, while the retailer generally raises prices to cover the costs, affecting all customers, regardless of payment method.
Critics have referred to the system as “Robin Hood in reverse,” as lower-income cash customers effectively subsidize the rewards received by wealthier cardholders. Stanford finance professor Chenzi Xu notes that swipe fees in the US are eight to nine times higher than those in Europe. While large retailers may be able to negotiate lower fees, smaller businesses have little choice but to accept whatever fees Visa and Mastercard set. A bipartisan group of lawmakers is advocating for the bill to introduce competition and potentially lower fees. However, the financial sector argues that the measure may compromise security and credit card rewards. Anchored by the dominance of Visa and Mastercard, the system maintains its stronghold as Americans continue their affinity for rewards and credit card usage.