Californians look to local leaders for relief ahead of swipe fee increases

As the holiday season comes to a close and Los Angelenos return to business as usual, one thing that remains is rising prices. Though retail sales spiked well before Christmas, Californians are still finding it harder to grapple with inflation and growing prices at the pump.

One way lawmakers could help reduce the financial strain on Californians is by addressing the root cause of rising swipe fees that unfairly burden small businesses and raise the prices of goods for everyday Americans trying to afford the basic necessities. By promoting competition in the payments marketplace, our elected officials can help end the monopolistic control by the four major credit companies, Visa, Mastercard, American Express, and Discover, that has led to ever-higher swipe fees.

While businesses and the broader economy work to recover from the pandemic-induced recession, Visa and Mastercard, who together control an overwhelming share of the credit card market, are planning to saddle merchants with yet another round of swipe fee increases. The fee hikes were postponed during the pandemic after public and congressional pressure, but have been rescheduled for this April. Californians are now looking to their elected officials on Capitol Hill to stay vigilant and continue their opposition to these upcoming swipe fee increases.

Credit card companies initially used swipe fees to recoup the cost associated with electronically processing card payments by forcing merchants to pay an additional fee for every transaction. Through technological advances, processing these transactions is now far less costly—though you’d never know looking at the ever-increasing swipe fees.

Instead of keeping swipe fees reasonably priced and closely associated with the cost of processing these transactions, credit card companies have instead lined their pockets and expanded reward offerings for their credit card customers. In 2019, Visa and Mastercard alone raked in over $67 billion from swipe fees, which is more than double what they earned nearly a decade earlier when there were more costs associated with processing transactions. Given the control these companies have over the payments marketplace, they can continue raising fees indiscriminately.

Swipe fees can range anywhere from 2 to 4 percent, depending on the rewards or bonus points associated with the credit card. Reward offerings are one of the biggest perks to using a credit card, but credit card companies often use a portion of swipe fees to enhance these benefits to attract new card users at the expense of working-class Americans who often do not qualify for the best rewards cards.

Adding a surcharge or banning the use of credit cards would alienate customers and cost more than the business would save on not paying the swipe fees. Therefore, this practice forces businesses like grocery stores and markets—where slim profit margins average around 1 to 3 percent—to raise prices across the board. In California alone, experts say food prices are up an average of 5.3 percent from last year.

Meanwhile, high swipe fees remain hidden to consumers. But across-the-board price increases hit everyone, including under- and unbanked Americans who disproportionately include historically disadvantaged groups. These individuals are far more likely to pay in cash and demographically tend to be younger, poorer, and more diverse. Therefore, already overburdened communities are unknowingly being forced to help pay for credit card reward programs that many of them aren’t able to take advantage of themselves. This is particularly true in Los Angeles County where almost one in five neighborhoods lack a bank or credit union, making it hard to cash a paycheck let alone benefit from premium credit card rewards.

In a recent survey, over half of the respondents said inflation was causing either major or minor strain on their financial situation. This increase in the cost of everyday goods paired with sky-high gas prices in Artesia and the surrounding area, which are breaking records, is too much for many families to afford. Credit card companies have acted to increase their own profit with little regard for how they affect merchants or consumers. Californians need their elected officials to keep up the pressure and find ways to increase competition in the payments marketplace to lower prices for everyone.

Ali Sajjad Taj is a city councilman in Artesia.