Small Businesses Could Be Hit by Credit-Card Fee Changes

Summary

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WSJ Your Money Briefing

Episode: Small Businesses Could Be Hit by Credit-Card Fee Changes
Date: April 9, 2020
Host: J.R. Whalen, The Wall Street Journal
Guest: AnnaMaria Andriotis, WSJ Personal Finance Reporter

Episode Overview

This episode delves into the impact of planned credit-card "swipe fee" increases on small businesses, especially during the tumultuous period of the coronavirus pandemic. WSJ reporter AnnaMaria Andriotis explains how these fees work, why they might rise, how small businesses are particularly affected, and the broader ramifications for business owners and consumers.

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Key Discussion Points & Insights

1. Background: What are Swipe Fees?

• Credit card companies (primarily Visa and MasterCard) charge merchants a fee for every transaction, known as "interchange" or "swipe" fees.
• These fees are typically adjusted once or twice per year.
• Fees for 2020 were scheduled before the pandemic began impacting the U.S.
  (01:59, AnnaMaria Andriotis)

  "The card companies on an ongoing basis will tweak. Fees can happen anywhere between once to twice a year typically."

2. Impact of Pending Fee Increases

• The planned increases, if implemented, would hit small businesses particularly hard due to thin profit margins and smaller cash reserves.
• Visa and MasterCard postponed their planned April increases to July 2020 because of the pandemic, with the possibility of further delays if conditions worsen.
  (03:18, AnnaMaria Andriotis)

  "...businesses that are already hit hard by the pandemic could see even financial pain from the new fees, should they actually kick in."

3. Who Will Be Most Affected?

• Both large and small merchants, especially restaurants (with average ticket sizes above $9) and small supermarkets.
• Fee increases are expected to disproportionately impact smaller businesses versus larger chains—especially evident in supermarkets and quick-service restaurants.
  (04:07, AnnaMaria Andriotis)

  "...they will go up for supermarkets, specifically for the smaller supermarkets than the larger ones. That's one example of MasterCard."

4. Scale and Growth of Swipe Fees

• In 2019, merchants paid $53.6 billion in interchange fees to card-issuing banks (Visa & MasterCard), up 8% from the previous year and 107% since 2012.
• The primary driver: More consumers using high-rewards credit cards, which increases costs for merchants as these rewards are funded by portion of these swipe fees. (05:49, AnnaMaria Andriotis)

  "That 53.6 billion was up 8% from a year prior and up 107% from 2012."

5. How Business Owners Experience It

• Example: A convenience store network CEO paid nearly $400,000 last year in card-related fees (including interchange and other charges).
• Card fees are among the largest line items after rent and payroll.
• Owners see a direct correlation between increased usage of rewards credit cards among customers and their rising costs.
  (08:14, AnnaMaria Andriotis)

  "He said there's rent, there's payroll, and then there's card fees."

6. Arguments from Card Networks

• Card networks argue fees support rewards programs, fraud prevention, innovation, and provide security compared to cash (less loss/theft risk).
• Nonetheless, businesses face rising expenses that are difficult to absorb, especially for small operators.
  (08:24, AnnaMaria Andriotis)

  "The argument from the card companies is that the fees go towards not just things like rewards, but they go towards helping to prevent fraud. They go towards innovation."

7. Effect on Consumers

• Merchants often pass at least some of the increased fees to consumers in the form of higher prices, regardless of whether the customer pays by cash or card.
  (06:44, AnnaMaria Andriotis)

  "...the sticker prices that consumers are paying, oftentimes, regardless of whether they're paying with cash or card, reflects those credit card fees that the merchants have essentially tacked onto their prices."

8. Industry Pushback and Friction

• Ongoing friction exists between merchants and card networks, sometimes leading to drastic steps like Kroger temporarily refusing Visa cards due to high fees.
• Despite tensions, merchants and networks remain reliant on one another.
  (09:13, AnnaMaria Andriotis)

  "There's definitely a lot of back and forth and at times a lot of friction between the card networks and, and the merchant groups and large merchant companies... both sides really need each other."

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Notable Quotes and Memorable Moments

• On fee increases amid a pandemic:

  "Small businesses tend to operate on thinner profit margins and smaller cash reserves. So when fees increase, that's something that is felt at a significant level at small businesses."
  — AnnaMaria Andriotis [04:27]

• On the direct impact for owners:

  "He said there's rent, there's payroll, and then there's card fees."
  — AnnaMaria Andriotis, regarding a convenience store network CEO [08:14]

• On passing costs to consumers:

  "...the sticker prices...regardless of whether they're paying with cash or card, reflects those credit card fees..."
  — AnnaMaria Andriotis [06:44]

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Key Timestamps

• [01:59] — Frequency and regularity of fee adjustments
• [03:18] — Pandemic’s effect on fee rollout decisions
• [04:07] — Types of businesses most impacted
• [05:49] — Data on total interchange fees and growth trends
• [06:44] — How costs are passed along to consumers
• [08:14] — Real-life example: How much a business pays in fees
• [09:13] — Industry pushback and merchant-card network dynamics

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Summary

This episode offers a clear, concise explanation of credit-card swipe fees, their looming increases, and the domino effect on small businesses already reeling from the pandemic. The show uses real numbers and firsthand accounts to illustrate how these industry changes quickly trickle down to both business owners and consumers, all within a rapidly shifting economic landscape.

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Transcript

[Small Business Owner Pro-Credit]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Advocate for Durbin Marshall Bill]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner Pro-Credit]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Advocate for Durbin Marshall Bill]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.

[J.R. Whalen - Wall Street Journal Host]

Here's your money briefing for Thursday, April 9th. I'm J.R. whalen for the Wall Street Journal. Small businesses have already suffered a lot during the coronavirus pandemic. Now we report that some credit card companies have been considering a change that would squeeze them even more by increasing the so called swipe fees that merchants are charged.

[Anna Maria Andreotis - Wall Street Journal Reporter]

Small businesses tend to operate on thinner profit margins and smaller cash reserves. So when fees increase, that's something that is felt at a significant level and then you sort of couple onto that, the issues playing out with the pandemic

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

and small businesses among the first to

[Anna Maria Andreotis - Wall Street Journal Reporter]

be hit and hit very hard.

[J.R. Whalen - Wall Street Journal Host]

That's Wall Street Journal reporter Anna Maria Andreotis coming up. She'll tell us what kinds of businesses would be most affected and whether credit card companies might delay the the fee increase. Credit card companies typically charge businesses a fee for every customer transaction. It's known as an interchange fee or a swipe fee. But a plan to increase those fees comes at a difficult time, especially for small businesses. Wall Street Journal reporter Anna Maria Andreotis joins us to explain what to expect. So, Anna Maria, do the credit card companies regularly raise these fees that they charge retailers?

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

The card companies on an ongoing basis will tweak. Fees can happen anywhere between once to

[Anna Maria Andreotis - Wall Street Journal Reporter]

twice a year typically. So the changes that are scheduled to come into play later this year have been scheduled for some time and were

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

decided on before the pandemic took over

[Anna Maria Andreotis - Wall Street Journal Reporter]

in the U.S. what kind of an

[J.R. Whalen - Wall Street Journal Host]

effect would this have on small businesses?

[Anna Maria Andreotis - Wall Street Journal Reporter]

So the main issue is that these fees, if they are implemented, could result in small businesses having to pay higher credit card fees.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

So many people don't realize this, but

[Anna Maria Andreotis - Wall Street Journal Reporter]

whenever you shop with a credit card at a store, that store is paying fees to the bank that issues your credit card. This is what we're talking about here

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

with regards to interchange fees or swipe

[Anna Maria Andreotis - Wall Street Journal Reporter]

fees, as they're called in more sort of layman's language. The companies that set these fees are Visa and MasterCard and other networks.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

So what we're talking about here is

[Anna Maria Andreotis - Wall Street Journal Reporter]

that Visa and MasterCard earlier this year

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

decided on what the new card fees would be for 2020.

[Anna Maria Andreotis - Wall Street Journal Reporter]

The plan had been to implement them

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

this year, but now with the pandemic having impacted so many businesses, the concern now really is that businesses that are

[Anna Maria Andreotis - Wall Street Journal Reporter]

already hit hard by the pandemic could

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

see even financial pain from the new fees, should they actually kick in. Now, Visa and MasterCard had planned to roll out fee changes in April this month and recently decided they weren't going to do that and that they delayed the rollout of these new fees to July. There's a sense that if the pandemic persists, if it worsens, there's going to be reevaluating happening here at the companies to decide whether or not these new

[Anna Maria Andreotis - Wall Street Journal Reporter]

fees will kick in.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

Ultimately, the issue with these fees is that the fees will go up for

[Anna Maria Andreotis - Wall Street Journal Reporter]

many businesses this year if they're implemented as planned. They will go up for many restaurants,

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

both large and small. They will go up for supermarkets, specifically

[Anna Maria Andreotis - Wall Street Journal Reporter]

for the smaller supermarkets than the larger ones. That's one example of MasterCard.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

And there will be other changes in which merchants of various sizes, but also

[Anna Maria Andreotis - Wall Street Journal Reporter]

in particular merchants that are small businesses,

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

will be seeing a greater impact.

[J.R. Whalen - Wall Street Journal Host]

Can small businesses handle this, given their economics?

[Anna Maria Andreotis - Wall Street Journal Reporter]

Small businesses tend to operate on thinner profit margins and smaller cash reserves. So when fees increase, that's something that is felt at a significant level at small businesses.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

And then you sort of couple onto

[Anna Maria Andreotis - Wall Street Journal Reporter]

that, the issues playing out with the pandemic and small businesses among the first to be hit and hit very hard. It basically adds up to more sort of financial pain for small business owners. But again, the changes here are also. They're not just limited to the small businesses. There are examples in which both large

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

and small businesses will be impacted.

[Anna Maria Andreotis - Wall Street Journal Reporter]

I think one interesting example is in October. Visa's current plans at least would result in changes in how these fees are calculated for restaurants. And quick service restaurants whose average purchase price is above $9 would be paying more in interchange fees.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

That is an issue that could impact

[Anna Maria Andreotis - Wall Street Journal Reporter]

merchants, restaurants of all sizes.

[J.R. Whalen - Wall Street Journal Host]

What kind of money are we talking about here? How much in fees are the credit card companies collecting?

[Anna Maria Andreotis - Wall Street Journal Reporter]

The dollar amount of interchange fees that merchants have been paying has been rising. That totaled just for credit card interchange

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

fees associated with Visa and MasterCard cards

[Anna Maria Andreotis - Wall Street Journal Reporter]

that totaled 53 point billion in 2019 that was sent to the banks that issued these cards. That 53.6 billion was up 8% from a year prior and up 107% from 2012.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

One of the reasons why these fees are going up Is because more and

[Anna Maria Andreotis - Wall Street Journal Reporter]

more people are shopping with credit cards and shopping with credit cards that have very generous rewards programs. These interchange fees help to fund the rewards programs that many shoppers are addicted to, Whether it's cash back or points or airline miles.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

One of the ways that these rewards are funded is through the interchange fees

[Anna Maria Andreotis - Wall Street Journal Reporter]

that merchants pay to the banks when people shop with their credit cards.

[J.R. Whalen - Wall Street Journal Host]

This really puts businesses in a tough spot because they probably have to pass on the fee increase to customers.

[Anna Maria Andreotis - Wall Street Journal Reporter]

Well, in general, merchants and businesses do tend to pass on at least some of the. The fees that they incur to consumers, to their customers in the form of higher prices. So the sticker prices that consumers are paying, oftentimes, regardless of whether they're paying with cash or card, reflects those credit card fees that the merchants have essentially tacked onto their prices. So it, it is a challenging equation for the merchants, but oftentimes, at least some of these fees will get passed on to consumers.

[J.R. Whalen - Wall Street Journal Host]

Now, you spoke to somebody who owns a network of convenience stores. What did they say is the impact the fees have on their businesses?

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

I spoke with an individual who is a CEO of the. Of the business that you described, and he said that his company paid nearly $400,000 last year in credit card and debit card fees. That includes interchange fees and other fees, because there are many fees beyond what we've talked about today, and that the fees are representing a small but growing share of his company's total sales. He said that one of the things he's noticed is the correlation between more shoppers coming in with these rewards credit cards and the rise in the dollar amount of credit card fees that his business is paying. I also thought it was notable that he said, you know, very few line items were bigger for his company than these, these card fees.

[Anna Maria Andreotis - Wall Street Journal Reporter]

He said there's rent, there's payroll, and then there's card fees.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

So now, you know, the card companies say that, look, you know, these, these

[Anna Maria Andreotis - Wall Street Journal Reporter]

fees serve a purpose.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

The argument from the card companies is that the fees go towards not just things like rewards, but they go towards helping to prevent fraud. They go towards innovation. Think about the benefits that they present as an alternative to cash. They'll say, for example, you know, many businesses will be dealing with issues of loss or theft of cash, and how do you recover that? It's almost impossible to recover that. You know, are employees stealing from you? Is. Was it just accidentally misplaced? And they're saying you don't really have that type of issue with cards.

[Anna Maria Andreotis - Wall Street Journal Reporter]

So there's definitely an argument on both sides.

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

But ultimately what it means is that the fees are something that are increasingly eating into many businesses.

[Anna Maria Andreotis - Wall Street Journal Reporter]

Sort of bottom line.

[J.R. Whalen - Wall Street Journal Host]

Have the credit card companies run into any opposition from companies regarding the swipe fees?

[Anna Maria Andreotis - Wall Street Journal Reporter (continued)]

There's definitely a lot of back and forth and at times a lot of friction between the card networks and, and the merchant groups and large merchant companies. I mean, I think one interesting example was Kroger had temporarily stopped accepting Visa credit cards at some of its units and cited the card fees as a reason for that, that things had just gotten to be too expensive. So that that sort of thing between one merchant, one major merchant and a major card network does play out from time to time. So, yes, the networks definitely do hear from the merchants. It's this relationship where in the end, I mean, both sides really need each other.

[J.R. Whalen - Wall Street Journal Host]

All right, that's Wall Street Journal reporter Anamaria Andreotis. Anamaria, thanks for coming on the show.

[Anna Maria Andreotis - Wall Street Journal Reporter]

Thanks for having me.

[J.R. Whalen - Wall Street Journal Host]

And that's your Money briefing. I'm J.R. whalen for the Wall Street Journal.

[Small Business Owner Pro-Credit]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Advocate for Durbin Marshall Bill]

Infliction is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner Pro-Credit]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Advocate for Durbin Marshall Bill]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.