Credit card swipeflation is quietly making back-to-school shopping more expensive
Hidden credit card fees hurt consumers and small businesses alike.
By TOM CHAPMAN
Right now, families across Nebraska and the country are working through back-to-school lists — backpacks, shoes, supplies, the works. The National Retail Federation estimates families will spend almost $900 on back-to-school shopping this season, up 10% from last year. What few if any of those receipts will show is a fee quietly built into nearly every purchase: the credit card swipe fee.
I run a digital commerce company based in Omaha. Last month alone, my company paid more than $4,500 in hidden fees, including credit card transaction fees. Small retailers all over the country face the same payment-processing costs.
Most consumers don’t think twice before tapping a credit card at checkout. Why would they? Paying with a card is fast and convenient, and often comes with the promise of rewards. Heck, I do it myself.
But every time a card is swiped, tapped or inserted, roughly $2 to $4 of every $100 is siphoned off by banks and card networks before the business sees a dime. In some industries, these fees can equal or exceed what the company itself makes on the sale.
Businesses have only two choices: absorb the cost or pass it along through higher prices. Most do some combination of both. The result is what many business owners now call “swipeflation” — the hidden inflation created by ever-rising credit card processing fees.
Nationwide, swipe fees totaled almost $200 billion last year, a new record high. That works out to more than $1,200 per household each year. Because merchants often build these costs into prices, every shopper helps pay them, whether they use cash, debit or credit.
So swipe fees cost people who never even use a credit card. That means the family paying cash for back-to-school supplies is subsidizing someone else’s premium rewards card.
Even most consumers who get credit card rewards are being fooled into thinking it’s a good deal. In reality, the credit card rewards game only benefits the highest spenders. When the higher prices caused by built-in swipe fees are taken into account, research shows that 80% of households actually lose money overall — often between $300 and $500 a year — even after counting rewards.
Card networks, meanwhile, enjoy a built-in raise every time prices go up. If inflation pushes the price of a backpack from $30 to $40, card companies collect 33% more money because they get a set percentage of the sale.
Small businesses don’t enjoy that luxury. When our costs increase, owners must postpone hiring, delay investments, cut expenses or raise prices. None of those choices is good for consumers or local economies.
For my business, this means that we have delayed hiring people for full-time entry-level jobs.
More competition is what the payments market needs.
Today, Visa and Mastercard account for nearly 70% of the credit card market. That concentration gives the dominant networks enormous power to keep fees high while limiting meaningful alternatives.
State and federal policymakers should encourage greater competition and innovative alternatives, including direct bank payments, that can compete on a level playing field.
Most people have never heard of swipe fees, but they pay them every day at the checkout counter. A more competitive payment system would put money back into consumers’ pockets, help small businesses like mine grow, and make everyday purchases more affordable for everyone.
Chapman is founder of Peeq Pro, a direct-to-consumer personal care company based in Omaha, and an advocate for policies that support small businesses and consumers.