SCOTT DETROW, HOST:
Visa and Mastercard say they have reached a settlement to resolve a long-running battle over swipe fees. These are the fees that restaurants and retailers pay the card companies every time a customer pays with plastic. The fees are pennies on the dollar of any particular transaction, but they add up to big bucks. NPR's Scott Horsley joins us now. Hi, Scott.
SCOTT HORSLEY, BYLINE: Hi. Good to be with you.
DETROW: Most of us don't think much about this when we pull out a credit card to buy, you know, incredibly small amounts of things these days, like $1.50, put it on your credit card. What's going on behind the scenes?
HORSLEY: Well, every time you swipe your credit card at the coffee shop, at the gas station, a little bit of that purchase price goes to the bank that issued the card and to Visa and Mastercard, which maintain the payment network. On average, that swipe fee is about two-and-a-third percent. And maybe that doesn't sound like a whole lot, but you multiply it by all those transactions, and it adds up. You know, last year, businesses paid well over $100 billion in credit card swipe fees. For many businesses, these fees have become a major expense, especially since the pandemic, when more people started using credit cards for those small purchases.
A couple of years ago, I talked to Victor Garcia about the ice cream shops he runs in Fort Worth, Texas. His customers had gone from mostly paying with cash to mostly paying with credit cards, and his swipe fees had ballooned as a result.
VICTOR GARCIA: Most are shocked. Half of them say, my gosh, I have no cash. I wish I did. People don't know. They just say, hey, I get points, so I'm going to use my card.
DETROW: So what would the settlement do?
HORSLEY: It's designed to resolve a 20-year-old lawsuit that accused the credit card companies of anti-competitive behavior. Now, there's no guarantee it's going to do that. An earlier settlement proposal failed to pass muster with a court. But even if it does resolve the legal battle, this deal is not going to settle the larger economic dispute. Trade groups representing retailers and restaurants say the proposal doesn't go nearly far enough. It would reduce the average swipe fee, but only by a little bit, and it would give retailers a little more flexibility to accept some credit cards while rejecting others.
DETROW: But why would they want that?
HORSLEY: Well, different cards charge different swipe fees, and a big reason for that is rewards. Maybe you've got a card that gives you cash back or airline miles or other perks when you use it. The way that card companies pay for those rewards is partly by raising their swipe fees.
DETROW: Oh.
HORSLEY: So the fee on a fancy rewards card might be twice what it is on an average card. So in other words, when you're cashing in those rewards, the businesses you patronize are having to pay more for it and possibly passing that cost along in the form of higher prices to everybody else. The settlement would allow merchants to turn down some costly credit cards, but there's a real question how workable that is. I mean, is a restaurant or a retailer really going to tell a customer, we don't take that card and possibly give up a sale?
DETROW: What other options do they have?
HORSLEY: Well, some businesses do now add a surcharge for customers who pay with a credit card. They might encourage customers to use their debit card instead. The swipe fees are regulated on debit cards, and so they're a lot lower. Some lawmakers are pushing a bill to encourage more competition on credit card swipe fees, although so far, card companies have managed to fight that off.
I recently got my car repaired, and because I knew about these swipe fees, I offered to pay my mechanic with an old-fashioned paper check. He doesn't ordinarily take checks, but he did take mine, he said, to avoid the swipe fee.
DETROW: NPR's Scott Horsley, a correspondent with high-value rewards points. Thank you so much.
HORSLEY: Thanks very much. Transcript provided by NPR, Copyright NPR.
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