As a restaurant owner in Miami, high inflation is strangling my business’s budget. Even with evasive action taken by the Federal Reserve, prices won’t stabilize overnight. In the meantime, there are strategies that will help dull the economic pain.
Unknown to most Americans, a tag team of credit card companies is lining their pockets at the expense of consumers and small businesses. Every time a customer swipes, inserts, taps or makes a payment online, credit card companies and banks charge businesses a fee to process the transaction. Legislation was recently introduced in Congress that will help rein-in these “transaction taxes.”
Asking for a reasonable amount of money for services rendered is warranted – after all, credit cards provide a service. But fixing prices on the backs of consumers and merchants shouldn’t be tolerated. And that’s exactly what’s happening.
Credit card processing fees have more than doubled over the past 10 years – all while technological innovations have driven the cost of managing transactions way down. US retailers paid more than $ 138 billion to accept debit and credit card payments in 2021. And on top of the financial headache, the process is confusing. For a small business, decoding a statement from the credit card company is like solving a Rubik’s Cube. My restaurant, for example, has hired an auditing consultant to help us navigate the system and avoid the high fees when possible.
The scheme is a result of a breakdown of the free market. Visa and Mastercard have formed a duopoly as they set these swipe-fee levels for the lion’s share of banks. As a result, there’s no true competition.
Similar to concession stands at a baseball game, credit card companies know they have merchants stuck between a rock and a hard place and can raise rates without fear of backlash. But what Visa and Mastercard do is even worse. It would be like organizing all the concession stands at ballparks across the nation to agree on charging the same inflated price. Consumers and merchants can’t escape the “credit card tax.”
About 80% of the market share is controlled by Visa or Mastercard – economic activity that businesses can’t ignore. So after being dealt a deal that can’t be refused, merchants are forced to pass down the extra expenses to consumers as price hikes or surcharges. In total, the National Retail Federation estimated the average American family pays $ 900 a year in higher prices from swipe fees – money that’s used to fund extravagant credit card perks that not everyone gets, like access to airport lounges, travel upgrades and hotel benefits.
The solution is transparency and competition. Enter the Credit Card Competition Act of 2022. Sponsored by Sens. Roger Marshall (R-KS) and Dick Durbin (D-IL), the bipartisan bill would apply free market principles to the credit card market that is currently dominated by Visa and Mastercard. The legislation would compel megabanks with more than $ 100 billion in assets to give small businesses more options on how to process the cards they issue to consumers.
The move fosters competition and would force credit card networks to compete for market share. That, in turn, would drive processing fees down.
The status quo isn’t working. Businesses like mine are being held hostage by credit card fees that are rising unchecked. We need our two Florida senators, Rick Scott and Marco Rubio, to join their colleagues in Washington and pass the Credit Card Competition Act of 2022. It’s a common-sense reform everyone should be able to get behind.
Carlos Gazitua is the president and CEO of Sergio’s restaurant in Miami, and a member of the Job Creators Network.