Small Businesses Could Be Hit by Credit-Card Fee Changes
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What fee changes are credit-card companies planning and why does this matter now?
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.
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 and small businesses among the first to be hit and hit very hard.
That's Wall Street Journal reporter Anna Maria Andriotis. Coming up, she'll tell us what kinds of businesses would be most affected and whether credit card companies might delay the fee increase.
Credit card companies typically charge businesses a fee for every customer transaction.
What are interchange or swipe fees and who sets them?
It's known as an interchange fee or swipe fee. But a plan to increase those fees comes at a difficult time, especially for small businesses. Wall Street Journal reporter Anna Maria Andriotis joins us to explain what to expect. So, Anna Maria, do the credit card companies regularly raise these fees that they charge retailers?
The card companies on an ongoing basis will tweak fees. It can happen anywhere between once to 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 decided on before the pandemic took over in the U.S.
What kind of an effect would this have on small businesses?
So the main issue is that these fees, if they are implemented, could result in small businesses having to pay higher credit card fees. So many people don't realize this, but 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 with regards to interchange fees or swipe fees as they're called in more sort of layman's language.
When were the new fee changes scheduled and have they been delayed?
The companies that set these fees are Visa and MasterCard and other networks. So what we're talking about here is that Visa and MasterCard earlier this year decided on what the new card fees would be for 2020. The plan had been to implement them this year. But now with the pandemic having impacted so many businesses, the concern now really is that businesses that are already hit hard by the pandemic could see even more 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 re-evaluating happening here at the company to decide whether or not these new fees will kick in.
Ultimately, the issue with these fees is that the fees will go up for many businesses this year if they're implemented as planned. They will go up for many restaurants, both large and small. They will go up for supermarkets, specifically for the smaller supermarkets than the larger ones. That's one example with MasterCard. And there will be other changes in which the
Which types of businesses—especially small ones—would be most affected by higher swipe fees?
merchants of various sizes, but also in particular merchants that are small businesses will be seeing a greater impact.
Can small businesses handle this given their economics?
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. And then you sort of couple onto 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 and small businesses will be impacted. 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.
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Chapters
7 chapters
1
What fee changes are credit-card companies planning and why does this matter now?
0:05–1:07
2
What are interchange or swipe fees and who sets them?
1:07–2:19
3
When were the new fee changes scheduled and have they been delayed?
2:19–3:45
4
Which types of businesses—especially small ones—would be most affected by higher swipe fees?
3:45–5:26
5
How much do merchants already pay in interchange fees and how has that trended?
5:26–8:17
6
Why do card networks defend these fees and what benefits do they claim they provide?
8:17–9:28
7
Have merchants pushed back against card networks and what are examples of that conflict?
9:28–9:37
Speakers
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