Harmful Interchange Fees: The Definition of Insanity

By: Hannah Walker, Vice President, Political Affairs, FMI  

Albert Einstein is widely credited with saying, “The definition of insanity is doing the same thing over and over again but expecting different results.” 

Einstein must’ve glimpsed into the future and seen our current payment’s landscape. For decades, the U.S. has allowed the credit card industry to run amok and  charge the highest card processing fees in the world to U.S. merchants and their customers. In 2019, U.S. merchants paid more than $116 billion in card processing fees, with over $90 billion alone being interchange fees, according to the Nilson Report. While other countries have taken steps to reduce these  fees, the unchecked credit card brands are planning to increase fees, yet again, in April.  

At a time when our economy is struggling to recover from the harsh impacts of the pandemic and businesses are fighting to keep their doors open, stores clean and associates safe, the card brands are simply making it that much harder for merchants to stay in business. This April, Visa and Mastercard intend to raise interchange fees by over $1 billion.  Even more concerning, these card fee increases are heavily centered on online transactions. As  grocery shoppers continue to rely on online ordering and curbside pick-up or home delivery, the card brands are using this opportunity to raise the cost for merchants to offer these services.  

Our current payment landscape is Einstein’s definition of insanity. An open and competitive market would prevent this one-sided levying of outrageous fees and create checks with bargaining power for all parties.  Unfortunately, the credit card system is devoid of true competition and transparency.  

It is clear the market has not improved over the past 30 years and it will not correct itself without government intervention. State legislators are taking notice, bills have been introduced in eight states (Iowa; Indiana; Illinois; Maine; Mississippi; Oklahoma; and Tennessee) to prohibit the collection of interchange on state sales tax.   

States are taking notice and it’s time for Congress to do the same. Congress has the power to reform the broken credit card market and bring real competition into the payment space that will benefit all involved, not just the two most dominant global card brands.  

 We cannot keep waiting for a different result - April is just around the corner.