Visa and Mastercard, two of the world’s leading credit card companies, are set to increase their fees, directly affecting many businesses.
Starting in October and again in April, these companies plan to raise the costs merchants have to pay when their customers use credit cards.
This change will be particularly noticeable for online transactions.
This fee hike could lead to businesses shelling out an additional $502 million yearly, as consulting firm CMSPI estimated.
Of this amount, over half will come from increases in network fees, the cut kept by Visa and Mastercard.
The rest will be from increased interchange fees, which are the costs merchants pay every time a customer swipes their credit card.
These costs are mostly invisible to the consumer. However, they are a key point of contention between the card networks and businesses, ranging from mammoth online retailers to small corner coffee shops.
According to the Nilson Report, U.S. businesses paid a staggering $93 billion in Visa and Mastercard credit card fees last year, a dramatic increase from the $33 billion paid in 2012.
Unfortunately, businesses often pass on some of these costs to customers through higher prices.
Visa, Mastercard, and large banks justify these fees as necessary to cover fraud prevention and innovation expenses.
Furthermore, banks often use the revenue from interchange fees to fund popular credit card reward programs.
However, with the current economic climate of inflation and high interest rates, many businesses are concerned about the impact of these rising fees.
This has caught the attention of Congress, and new legislation has been introduced that could potentially allow merchants to process Visa and Mastercard transactions through alternate, and potentially cheaper, networks.