Small businesses are the backbone of Utah’s economy, playing a pivotal role in driving growth, innovation, and community development across the state. These enterprises are essential contributors to the state’s economic diversity and resilience, amounting to 99.3% of all businesses in the state. As a small business owner, I know the impact these fees are having on my business.
Unfortunately, record-high swipe fees set by the major credit card companies are directly cutting into our business’ profitability by taking a percentage of each credit card transaction and funneling that money out of our communities and into the pockets of major financial institutions.
American small businesses pay the highest swipe fees in the world, and the situation is only getting worse, with swipe fees increasing over 50% in just the past three years at the same time businesses have been trying to survive historic inflationary pressures.
These fees place an undue burden on small business owners, inhibiting growth, innovation, and investment. But how have these fees gotten so out of control?
The Visa-Mastercard duo controls over 80% of the U.S. credit card network market. When you use a Visa or Mastercard credit card, about 2-3% is taken from the amount the store gets due to swipe fees. Some of this money goes to Visa and Mastercard as a fee for using their network, but most of it goes to the bank that issued your card, which makes these major financial institutions eager to issue cards with Visa and Mastercard and cast aside other capable networks like Pulse and SHAZAM that could offer merchants similar services with less fees. Without healthy market competition, Visa and Mastercard will continue to set and raise swipe fees that put the financial burden onto merchants who are already grappling with tight profit margins, simply to increase their already record-high profits.
And when small business owners are confronted with these escalating swipe fees, which typically account for their second-highest overhead cost after labor, they are often left with little choice but to adjust their prices to stay in business. These price increases caused by rising swipe fees worsens inflation, making it much harder for Utahns to make ends meet.
Consequently, the burden of escalated swipe fees not only makes it difficult for small businesses to survive, much less grow, but they also have a multiplying effect on inflation.
This is why we need Senators Mitt Romney and Mike Lee to support the Credit Card Competition Act currently being considered in Congress. The law would make the largest banks (those with over $100 billion in assets) offer credit cards that can be used with at least two different networks, not just one. And at least one of these networks must not be Visa or Mastercard. In simpler terms, big banks that issue most Visa and Mastercard credit cards would need to add another competitive network to each card. Then, when a purchase is made, the seller can choose which network to use. Dual routing options have already been successfully implemented on debit cards in the US, and on credit cards in other parts of the world.
A diverse market encourages innovation and compels payment providers to continually enhance their services to attract customers. With more players competing, providers will strive to offer cutting-edge technology, strong security measures, and user-friendly interfaces that streamline transactions while safeguarding data.
Increased competition will also drive down prices, benefiting businesses and consumers alike. Ultimately, a competitive payments landscape promotes customer-centricity, innovation, and cost-efficiency, economically benefiting communities across the state. The status quo only hurts small businesses and consumers – it’s time to pass the Credit Card Competition Act.
Charly Connor lives in Vineyard, UT and is the founder of A-Z enterprises.
