Last week, after hearing scratching in the walls and noticing mouse droppings under the kitchen sink, my girlfriend called an extermination service. The fellow who showed up—wiry, bearded, with a rural Maryland accent—seemed to know his business and certainly didn’t mind talking about it. He said he likes his job—pays better than his previous occupation, farmer—but he has a few complaints.
First, he frequently encounters snakes when poking around crawl spaces, and he’s not a fan of them (I warned him there are black rat snakes in ours). Second, he’s miffed at state regulators who no longer allow him to kill the snakes or other critters. “They redefined them as ‘wildlife,’” he sneered. And third, after requesting we pay by check rather than by card, he went on an extended rant against the high transaction fees that credit card companies charge small businesses. His five-person firm, he said, paid $26,000 in “swipe fees” last year.
As it happens, on the day the exterminator came out, the Senate Judiciary Committee held hearings on this swipe fee problem. Chairman Dick Durbin scheduled the hearing after Visa and Mastercard, which control more than 80 percent of credit card transactions, imposed a $1.2 billion increase in swipe fees last month. This gouging is on top of the extra $27 billion in credit and debit card processing fees that American merchants paid in 2021 compared to 2020 (a 30 percent increase), according to one of the witnesses, Doug Kantor, general counsel for the National Association of convenience stores.
The swipe fees, Kantor explained, “increase along with every dollar of inflation” and act as an “inflation multiplier,” forcing retailers to increase prices “to keep up with the spiraling fees.” During its last two earnings calls, he added, Visa made clear that it is “a beneficiary of inflation” and that inflation is “a positive 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 provide lower swipe fees to merchants to gain their business, just as they offer lower interest rates and other perks to compete for consumers’ business. Visa and Mastercard, however, use their market power to force all banks to impose the same fees.
Moreover, the complex fee schedules the duopoly demands are higher for small businesses because charges are based in part on volume. “Small retailers with a few dozen transactions a day pay a higher rate than national retailers with millions of transactions,” noted the National Retail Federation in a letter to the committee. “Fees are also higher for e-commerce transactions, which have become increasingly important to small retailers because of the shift to more online shopping since the beginning of the pandemic.”
The behavior of Visa and Mastercard seems like textbook violations of antitrust law. Indeed, the Justice Department and the Federal Trade Commission have brought antitrust cases against the credit card giants. Those cases, however, only narrowly restrained the firms’ market power. Much more vigorous prosecutions are in order.
Congress could help by passing legislation requiring greater competition in the swipe fee market. A provision in the 2010 Dodd-Frank act, authored by Durbin himself, boosted competition and moderated fee hikes in the debit card market, but the law didn’t apply to credit cards. At last week’s hearing, there was talk of revisiting that provision, even from Republicans.
Cracking down on credit card swipe fees is precisely the kind of action that might get 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 about regulations made us think he was a Trump guy. Still, millions of small business people are getting ripped off by Mastercard and Visa. They might be energized by signals that the Democrats understand their plight and are addressing it.
Alas, virtually none of them are likely to have even heard about last week’s hearings because, aside from a story in Roll Call, it got no national media coverage. In the cacophony of other issues—abortion, Ukraine, gas prices—serious efforts by congressional Democrats to move bipartisan anti-monopoly legislation through both houses and the Biden administration to step up antitrust enforcement against Big Tech and Big Ag monopolies aren’t breaking through to the public. If the party can’t change that dynamic soon, it is likely to be as screwed in the midterms as the average small business is by the credit card cartel.