We heard a lot from the presidential and congressional candidates about keeping taxes low for the middle class and helping small businesses create jobs. They said nothing, though, about an unknown and hidden “tax” on the use of credit cards that hurts every consumer and merchant. It’s called the swipe fee — the fee that merchants (and, ultimately, consumers) pay to banks to accept a card.
Even though swipe fees are invisible to consumers, they result in higher prices, even for those who mostly pay with cash and rarely use a card. The only difference between swipe fees and taxes is that the $50 billion in revenue that the swipe fee generates every year goes directly to banks rather than to the government. Every American household on average pays about $427 a year in the swipe fee “tax.”
Banks have a right to charge for the use of their cards and make a profit if they earn it; however, they don’t have a right to price-fix, which is exactly what they are doing. Visa and MasterCard each set the fees for their banks, and none of the banks compete. With the fee hidden, competitive market forces never have a chance to break the fixed prices. That’s wrong and is what makes swipe fees more like an unavoidable, hidden tax on business rather than a legitimate private charge that goes into the cost of doing business.