Friday, May 17, 2024

Louisianans look for swipe fee relief as prices stay high

by BIZ Magazine

Louisiana remains one of the top states hampered by sky-high prices amid a slow nationwide recovery from record inflation. The Pelican State is home to the fifth highest inflation rate in the country and is only one of eight states where inflation sits over seven percent year-over-year, according to a recent report. Louisiana businesses and consumers need relief, which lawmakers can help deliver by tackling credit card swipe fees.

While often unknown to consumers, swipe fees are charged to merchants every time someone pays with a credit card, taking a percentage of the total transaction. These fees, which average around 1.5 to 3.5 percent, can strain a company’s bottom line, especially for small businesses and those with tight profit margins. As a result, Main Street businesses are forced to raise prices to cover these fees, which in turn drives them even higher. This creates a vicious cycle of ever-rising prices, further fueled by inflation.

One such example of this is the grocery sector, where profit margins are lower than 2 percent, meaning inflation coupled with increasing swipe fees can hit the budget hard and inflate the cost of groceries. Louisianans feel this impact more than most, considering the state has the third highest rate of food scarcity in the country. Meanwhile, pocketbooks are getting stretched thinner as expanded food stamp benefits implemented during the pandemic ended on March 1, cutting support for over 460,000 Louisiana households.

Groceries are just one small example of the impact of swipe fees on rising costs. New estimates show the total cost of swipe fees for an average American family grew to over $1,000 a year. Unfortunately, merchants have little say in the credit card swipe fees they’re forced to pay and ultimately pass on. Last year, card fees rose nearly 17 percent from the year prior, with merchants paying a whopping $160 billion. Despite the technology and capabilities of processing a transaction becoming easier over time, these fees continue to grow exponentially.

This is largely due to the expansive market control Visa and Mastercard have over the payments sector. The two companies combined hold around 80 percent of the market share and wield the monopolistic power to block out their competitors and arbitrarily raise fees to pad their profit margins. During the pandemic and peak inflationary concerns, Congress warned Visa and Mastercard not to raise swipe fees, but after a short postponement, the credit card companies continued with their scheduled rate increases.

Fortunately, Congress can bring relief to merchants and consumers via the Credit Card Competition Act (CCCA). Originally introduced by U.S. Sens. Roger Marshall (R-KS) and Dick Durbin (D-IL), this bill takes aim at the way credit card companies consolidate control over the market through major banks that simply pass on their fees by way of using their card services.

Currently, banks offer merchants one option to route their transactions through major credit card companies like Visa or Mastercard. If passed, the CCCA would require a second routing option be made available from a competitor, meaning smaller networks like Pulse or Star could offer businesses a cheaper alternative.

Bringing free market competition to the payments industry would help spur innovation in the sector and drive down costs for merchants and consumers. Better yet, this bill only applies to financial institutions that make over $100 billion in assets, which leaves smaller credit unions and local banks to serve the Louisiana communities they know best.

With Louisiana’s inflation rate so far from the Federal Reserve’s goal of two percent, it’s imperative Congress acts to provide relief soon. Given Sen. John Kennedy’s role on the Senate Banking Committee and Sen. Bill Cassidy’s commitment to safeguarding Louisiana’s small business community, I hope they’ll work with their colleagues to pass the CCCA and help bring costs down.

By Ricky Landry, Louisiana Retailers Association

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