In California, swipe fees are the third-largest expense for merchants, with small businesses being hit hardest. Larger retailers, due to higher transaction volumes, can negotiate lower fees, leaving small businesses at a disadvantage. California law requires businesses to collect and remit state and local taxes for free, but credit card companies charge swipe fees on these tax payments. With that merchants and customers end up paying extra fees while credit card companies profit.
Swipe fees put small businesses at a Competitive Disadvantage: Larger businesses with higher transaction volumes often negotiate better rates, leaving smaller businesses at a disadvantage.
“Many small businesses feel they have little choice but to pass on the fees to consumers via higher prices or risk smaller profit margins. Swipe fees drove up prices for the average American by at least $900 in 2021, according to estimates from the Merchants Payments Coalition, which represents a variety of small businesses including restaurants and convenience stores.”
According to the State of Industry Report by consulting firm CMSPI, swipe fees are most merchants’ highest operating cost after labor and have to be built into pricing. The total amount collected has more than doubled over the past decade and the fees drive up prices by about $1,700 a year for the average family.
In California, businesses must collect and remit sales taxes at no cost, yet credit card companies charge swipe fees on these transactions, profiting significantly. Inflation further burdens small businesses by raising costs, reducing consumer spending, tightening profit margins, and forcing price hikes that may drive away customers.
For credit card companies, inflation is great since it makes profits from swipe fees skyrocket:
Visa: "Inflation has been positive for us"
Visa: "We're a beneficiary of inflation"