When consumers pay for a purchase with a credit card, banks and the card companies charge merchants a percentage of the transaction, averaging a little over 2 percent but sometimes as high as 4 percent, to process the payment.
Fees charged by the banks that issue credit and debit cards make up the largest share (about 80 percent) of these fees. In addition, card networks such as Visa and Mastercard charge merchants a network fee and the merchant’s card processor (often its regular bank) charges a fee as well, sometimes called an acquiring fee or processor fee.
- In 2022, credit and debit card processing fees totaled $160.7 billion, according to the Nilson Report. That was up 16.7 percent from 2021 and more than double the $66.5 billion seen a decade earlier in 2012.
- Fees for credit cards alone totaled $126.4 billion in 2022, almost two-and-a-half times the $51.5 billion from 2012, according to Nilson.
- Fees for Visa and Mastercard credit cards alone – the two largest card brands – totaled $93.2 billion in 2022, close to triple $32.7 billion in 2012, according to Nilson.
U.S. card processing fees are among the highest in the world, averaging 2.24 percent of the transaction amount for Visa and Mastercard credit cards, according to Nilson. That’s seven times the maximum European rate despite higher volume and lower technology costs in the United States.
- Fees are most merchants’ highest operating cost after labor and drive up prices paid by consumers, amounting to over $1,000 a year for the average family.
- These fees account for between $2 and $4 of every $100 consumers spend. In other words, a product that sells for $100 could sell for between $96 and $98 without these fees.
Card industry rules make it difficult for merchants to offer a cash discount, meaning all consumers pay the credit card price whether they use a credit card or not. That is particularly unfair to low-income consumers.
Credit card processing fees have more than doubled over the past decade despite technological improvements that have driven down processing costs. This is clear evidence that the U.S. card payments market is broken and lacks competition. Unfortunately, domination of the payments market by its two largest players – Visa and Mastercard – has prevented any real competition that would provide a market-based solution. Banks and the card networks have ignored merchants’ demands that they negotiate fees or compete to offer lower fees. Two decades of litigation has failed to resolve the issues.
MPC firmly believes in opening up the payments market and introducing competition, which would lower costs and drive innovation. Making fees transparent would be a first step toward bringing about competition. Rather than following Visa and Mastercard in lockstep, banks should set fees independently and compete to offer the lowest fees.
While Congress has brought transparency, competition and predictability to debit card fees, credit card fees remain out of control. It is time for Congress to take a close look at the credit card market and implement reforms that bring true transparency and competition.