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What are swipe fees?
Swipe fees are charges by card issuers to retailers for purchases made with credit or debit cards. How it works: Companies who administer the cards, primarily Mastercard and Visa, charge a percentage of the overall transaction value to the retailer. Each month, the lump sum of these card processing fees is added to the monthly bill payment processors send to retailers.
The average swipe fee is about 2-2.5% of a customer’s purchase, but can exceed 4%. This means that for every $100 of merchandise bought with a card, retailers owe an additional $4 in fees.
What does this mean c-store owners?
The average convenience store revenue is $1.75 million per year. 41% of transactions are made with payment cards. So c-store owners, are losing up to $29,000 in swipe fees each year. Swipe fees have become the second biggest business expense for retailers, falling behind only labor expenses. In the convenience industry, retailers pay $14 billion in swipe fees every year. Often c-stores have to raise their prices to stay profitable. In turn, customers shop less and overall store revenue falls.
What is being done about swipe fees?
Recently, United States court upheld a $5.6 billion settlement ruling between retailers and Visa and Mastercard. This ruling means that retailers who qualify are entitled to money because Visa and Mastercard were charging them unfair fees. However, this lawsuit did nothing to prevent the card issuers from continuing to charge massive swipe fees or break up their monopoly, which would drive fees down.
Congress is trying break up the Visa and Mastercard monopoly by forcing them to allow retailers to access competitors’ card processing technology:
- In 2010, Congress added an amendment to the Dodd-Frank Wall Street Report and Consumer Protection Act that limited fees charged to retailers for debit card processing.
- In 2022, Sens. Richard Durbin and Roger Marshall introduced a similar law – called the Credit Card Competition Act—to pass regulations for credit card processing.
These are the same regulations that reduced debit card swipe fees in 2010. The legislation would introduce more competition to credit card processing and potentially reduce swipe fees paid by customers and retailers by $11 billion a year. But, Congress has yet to vote on the Credit Card Competition Act. The National Association of Convenience Stores publicly supports the bill, citing the increase in competition as good for small retailers.
So, what can small retailers do to reduce their swipe fees today?
While waiting for Congress to act, there are steps small retailers can take to minimize card payment fees. The simplest step is to move to a cash-only model. However, cash-only has its disadvantages and may actually hurt revenue more than it helps.
Retailers can also update their terminal technology, like payment processing and point-of-sale (POS) services to reduce payment-related fees. For example, payment processors, like Square, add their own payment processing fee on top of ones charged by Visa and Mastercard. And systems like Clover can only use Clover POS and processing hardware, amounting to $2,400 in up-front costs. These providers lock you into their system and the monthly fees for their services.
Retailers can minimize fees by choosing a POS system that employs open-source software. These point-of-sale systems, like SmartPOS, provide retailers with the ability to choose their payment processor, empowering them to shop around to find the best cost for payment processing.
Reducing the costs, like monthly fees, associated with the payment terminals can also help reduction operational costs associated with payments. In addition, the upfront costs and maintenance fees can save retailers money. For example, a system like SmartPOS is able to be serviced remotely, which significantly reduces the cost of maintenance compared to other POS systems. Lastly, terminals that do not require monthly fees provide additional savings. Once activated, the system is yours to use.
To learn more about SmartPOS, request a demo with our team.
