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Retail Outlets Clash With Credit Card Companies Over Escalating Fees

In 2022, merchants in the United States shelled out a staggering $126 billion in credit card fees
Cover Image Source: The relentless rise of credit card fees is bothering restaurant owners (representative image) | Unspalsh | daan evers
Cover Image Source: The relentless rise of credit card fees is bothering restaurant owners (representative image) | Unspalsh | daan evers

In the heart of Woodside, Queens, where the aroma of sizzling steaks and the chatter of familiar patrons fill the air, Donovan’s Pub stands as a steadfast pillar of the community. For over half a century, this neighborhood gem has been serving up hearty meals and fostering a sense of belonging among locals. Dan Connor, the proprietor of Donovan’s Pub for the past 11 years, takes pride in its legacy and the diverse menu that has kept patrons coming back for generations, per Marketplace.

Image Source: Pexels/Anna Urlapova
Donovan’s Pub stands as a steadfast pillar of the community (representative image) | Pexels | Anna Urlapova

“We’ve won best burger a few times,” Connor remarks with a grin, reflecting on the pub's culinary accolades. Yet, beyond the celebrated burgers and hand-cut fries, Donovan’s offers a comprehensive array of dishes, ranging from comforting French onion soup to zesty Italian fare. It's the quintessential neighborhood haunt where regulars mingle, newcomers are welcomed and memories are made over good food and company. However, amid the savory scents wafting from the kitchen, Dan Connor grapples with an increasingly pressing concern: the relentless rise of credit card fees. Like countless other restaurateurs and merchants across the nation, Connor finds himself at the mercy of economic forces that chip away at his already slim profit margins. Inflation, escalating labor costs, and soaring utility bills are formidable challenges in their own right. Still, it's the insidious creep of credit card fees that compounds Connor's financial woes. Every swipe of a credit card incurs a fee small individually, but it becomes substantial collectively, diminishing the earnings from each transaction.

Women are now going out on solo dates and paying for themselves. Image Source: Pexel|Photo by Doğu Tuncer
Representative image | Pexel | Photo by Doğu Tuncer

“When we first took over 11 years ago, we were probably doing 50-60% of our business in cash. And now that’s probably down to 10% to 20%,” Connor laments, illustrating the profound shift towards card transactions. With more patrons opting for the convenience of plastic over cash, the burden of credit card fees weighs heavier on Donovan’s bottom line. The staggering scale of these fees is eye-opening. In 2022 alone, merchants in the United States shelled out a staggering $126 billion in credit card fees, marking a 20% surge from the previous year.

Sean Kennedy, executive vice president for public affairs at the National Restaurant Association, underscores the severity of the situation, noting that swipe fees now rank as the third-highest expense for restaurants, trailing only food and labor costs. Behind the veil of these fees, lies a contentious battleground where merchants and credit card companies clash over accountability and fairness. While credit card companies assert that their rates have remained relatively stable, merchants argue that hidden fees and opaque pricing structures disproportionately burden small businesses.

Image Source: Pexels|Photo by Andrea Piacquadio
Opaque pricing structures disproportionately burden small businesses (representative image) | Pexels | Photo by Andrea Piacquadio

Doug Kantor, general counsel for the National Association of Convenience Stores, sheds light on the deceptive tactics employed by credit card companies, citing the proliferation of high-end cards with exorbitant interchange rates. These rates, concealed within a labyrinth of complex fee structures, take a heavy toll on merchants, who are barred from passing these costs directly onto consumers.

The debate over credit card fees extends beyond mere economics, touching upon fundamental questions of fairness and market competition. Advocates for regulation argue that reigning in exorbitant fees would level the playing field for small businesses and foster a more equitable marketplace. Conversely, proponents of the status quo contend that any interference would jeopardize consumer benefits such as lucrative rewards programs.

Cover Image Source: Pexels |
 Credit cards provide lucrative rewards programs (representative image) | Pexels |

Indraneel Chakraborty, chair of the finance department at the University of Miami, acknowledges the complexity of the issue, noting that while regulation may alleviate the burden on merchants, it could potentially diminish consumer incentives. However, examples from countries like Australia, where regulated credit card fees coexist with thriving rewards programs, offer a glimmer of hope for a balanced solution.