Online marketplace behemoth eBay told customers in an email that it plans to no longer accept American Express, citing “unacceptably high fees” and that customers have other payment options to shop online.
The email states that this will take effect on August 17. While focused on Amex, the online marketplace also addressed swipe fees more broadly, adding “At a time when payment-processing costs should be declining because of technological advancements, investments in fraud capabilities, and customer protections by merchants like eBay, credit card transaction fees continue to rise unabated because of a lack of meaningful competition.”
“Amex is just a symptom of the underlying problem,” Merchants Payments Coalition (MPC) Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor said in a news release. “Visa and Mastercard each centrally price-fix high swipe fees that are uniformly charged by all banks that issue cards under their brands rather than letting the banks compete for merchants’ business. That cartel pricing by the nation’s two largest card networks sets a baseline of high swipe fees. The solution is to pass the Credit Card Competition Act to bring competition to swipe fees and fix this broken market for all card brands.”
Swipe Fees an Ongoing Problem
This isn’t the first instance we’ve seen where high swipe fees are an issue. CNBC cites that Amazon had a similar fight with Visa in the U.K. roughly two years ago, where Amazon threatened to drop Visa as a payment acceptance type over what it also called high fees. Visa and Amazon eventually resolved their differences and there was no disruption of service.
MPC also states that banks, along with Visa and Mastercard, charge merchants an average 2.3% of the transaction to process Visa and Mastercard credit cards. Amex charges an average 2.3%. While Amex’s fees are higher, it makes up only about 15% of the market and its swipe fees totaled $26.2 billion last year while swipe fees for Visa and Mastercard credit cards, which amount to over 80% of the market, totaled $100.8 billion.
Swipe fees have more than doubled over the past decade and hit a record $172 billion last year when debit cards and all brands of credit cards are included, according to MPC. The fees are most merchants’ highest operating cost after labor and drive up prices for the average family by more than $1,100 a year.
The Credit Card Competition Act
A solution that would help this ongoing swipe fees issue could be the Credit Card Competition Act. Introduced to Congress last year, this act would address network access and competition in credit card transactions. The bill sponsors’ stated goal is to increase competition in the credit card industry with the hope of reducing expenses for merchants during the credit card transaction process.
“The act would require the largest credit card-issuing banks to enable at least two credit card networks to be used on their cards instead of just one, and one of those networks must not be Visa or Mastercard,” explains Eric Cohen, CEO and founder of Merchant Advocate. “This will allow the merchant to choose its preferred payment processing network, meaning that if the card brands continue to raise fees, they’ll get less business.”
But would this actually work? While Cohen explains that it may certainly help to lower the fees, it may still hurt small businesses in the long run.
“Senator Durbin points to the debit card industry as proof that this method works – federal law has implemented this model with debit cards for over a decade,” he says. “However, this puts the onus on merchants to educate themselves about credit card networks and which fees are cheaper. It will also hurt smaller businesses that have fewer resources to spare on understanding these nuances than big merchants with extensive finance and legal teams.”
