Interchange Increases Will Exacerbate Inflation, a Growing List of Merchant Groups Contend

One of the country’s biggest merchant associations on Monday joined a growing chorus of voices arguing fee increases planned by the major card networks for this month will exacerbate inflation.

“American consumers are struggling under the worst inflation in four decades, and these increases would only make the situation worse,” said Leon Buck, the National Retail Federation’s vice president for government relations, banking, and financial services, in a statement. “Swipe fees are a percentage of the transaction, so banks and card networks are already receiving an unearned windfall.”

The term “swipe fees” refers to interchange rates, which are set by Visa Inc. and Mastercard Inc. and levied on acquiring companies for each card transaction. Issuers receive the revenue, while acquirers typically pass the fees on to merchants. Inflation in the United States was running at an 8.5% rate at the end of March for the previous 12-month period, the highest level since December 1981, according to the U.S. Department of Labor.

The NRF’s argument that the networks’ planned increases will make inflation worse echoes a similar case laid out last week by other merchant advocacy groups, including the Merchant Payments Coalition. The MPC on Friday said it welcomed a letter from both Democratic and Republican members of the House and Senate asking Visa and Mastercard to withdraw their planned interchange increases. 

“As Americans are dealing with the highest rate of inflation in decades, your profits are already high enough and any further fee increase is simply taking advantage of vulnerable Americans,” the letter said, though the card networks do not receive interchange income.

The letter “shows that this is an issue that crosses political lines. This is about the card industry continuing to profit on the backs of Main Street merchants and hard-working American families at a time when they can least afford it,” said Anna Ready Blom, a member of the MPC executive committee and director of government relations at the National Association of Convenience Stores, in a statement released Friday. 

The rising pressure on the card networks comes as they prepare to implement fee changes that include some rate reductions along with increases. The net impact will be an estimated $475 million in additional cost, according to estimates from CMSPI, a global research firm. The two big networks have historically revised their rates yearly, but have held off the past two years in recognition of the impact of the Covid-19 pandemic on the payments industry.

Not all observers see the logic in the merchant advocates’ contention that additional interchange cost will drive up inflation. “Politicizing payment-system fees isn’t good for anybody, and the notion that interchange fees are driving inflation is preposterous,” argues Eric Grover, principal at the consulting firm Intrepid Ventures. “For the last several decades US interchange fees have been relatively high, yet price inflation has been low,” he adds.

Merchant advocates’ time would be better spent in another direction, Grover says. “If …the merchant lobby’s paramount concern was fighting inflation, they would be publicly calling for the Fed to aggressively hike interest rates and reduce its bloated balance sheet. Their silence on that score is deafening.”