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Merchants bid to block looming interchange fee hikes

Merchants bid to block looming interchange fee hikes

The Merchants Payments Coalition is calling on US politicians to block Visa and Mastercard interchange fee hikes that are set to take effect in April.

The retailer lobby group wants Congress to investigate Visa and Mastercard’s "anti-competitive dominance" over the US credit and debit card markets, citing President Biden’s call in his State of the Union address to fight inflation by increasing competition.

“The two giant card networks and their partner mega-banks routinely use their market power to stifle competition and charge merchants the highest swipe fees in the industrialised world,” the MPC says. “MPC requests that the committee immediately investigate how Visa and Mastercard are allowed to double down on the pain they inflict on Main Street when everyone else is working to tackle inflation. It is crucial for Congress to act swiftly and implement real reforms to bring true competition, transparency and equity to the US payments market.”

MPC’s comments came in a letter to the House Financial Services Committee, which is scheduled to hold a hearing today on inflation that has hit a 40-year high during the Covid-19 pandemic.

Swipe fees for Visa and Mastercard credit cards average 2.22 percent of the purchase price and totaled $61.6 billion in 2020, up 137 percent over the previous decade, according to the Nilson Report.

Because the fees are a percentage of the transaction amount, the amount collected rises as prices rise, the letter said. When a $100 item increases to $107 based on the 7 percent inflation seen in 2021, swipe fees increase from $2.22 to $2.38, for example.

“This structure ensures greater profits for banks and card networks as prices rise,” MPC said. “The compounding multiplier effect of inflation is guaranteeing mega-banks massive profits paid for by American consumers and Main Street merchants.”

The fees are set to rise even higher when $1.2 billion in increases planned by Visa and Mastercard takes full effect in April. The increases were delayed from a year ago after members of Congress said they would “undermine efforts to help the economy recover”.

Mastercard is additionally singled out for plans to double its 'Digital Enablement Fee' for online transactions while bunding a number of existing add-on services under the fee. That means merchants who use services from Mastercard competitors would end up paying twice, potentially undermining the competing firms, states the MPC. In addition, Mastercard plans to automatically enable merchants to accept its new buy now, pay later programme. The Coalition says this exposes merchants to high BNPL fees on top of swipe fees and give Mastercard an unfair advantage over competing BNPL providers.

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