Covid-19 Shopping Makes Card Fees a Bigger Burden for Merchants

Visa Inc.

V 1.82%


Mastercard Inc.

MA 2.87%

are planning to raise swipe fees for some types of credit-card purchases in April, adding to the squeeze felt by restaurants, retailers and other merchants already struggling through the Covid-19 pandemic.

What’s more, customers’ switch to online shopping during the pandemic—a trend heralded for keeping businesses afloat when people are reluctant to venture inside stores—is also creating extra costs for merchants. Swipe fees, which merchants pay when a customer pays by card, are often higher on online purchases.


Do you prefer to shop by cash or card? Why? Have your preferences changed during the pandemic? Join the conversation below.

The swipe fees, known as interchange fees in industry parlance, are a perpetual source of contention between merchants and card companies. Though invisible to consumers, they are glaring to merchants, which often end up paying fees of about 2% of their customers’ credit-card purchases. The fees are set by the card networks, such as Visa and Mastercard. Merchants pay them to the banks that issue the cards.

Cash use as a share of U.S. payments has been declining for years, but merchants say Covid-19 has accelerated the shift. Even customers who are shopping in stores are shunning cash during the pandemic, which also means more swipe fees for businesses.

Savage Race, a small business that organizes obstacle-course races, has seen sales plummet during the coronavirus. To help persuade counties to let it keep hosting events, company executives told local officials they would stop accepting cash.

“We didn’t want to,” said

Sam Abbitt,

the chief executive of Savage Race. “It was one more frictional cost of Covid.”

Before the pandemic, about half of the payments Savage Race received at events were in cash, the method that Mr. Abbitt prefers because he doesn’t have to shell out for swipe fees. “I think people like to get credit-card rewards, and it’s convenient for them to not have to carry physical cash around,” Mr. Abbitt said. But for him, “as a business owner, I like to receive cash.”

Card-industry executives say interchange fees help cover costs for important functions such as innovation and preventing fraud. They point out that the chances of fraud are higher with online purchases, which is partly why online swipe fees are often higher. Fraudulent online card transactions, which can result in more costs for merchants, jumped last year, according to industry data.

While total retail sales, excluding cars and gasoline, increased 0.3% from March 2020 through January from the same period a year earlier, online sales increased 57%, according to Mastercard’s SpendingPulse, which measures in-store and online retail sales across all payment forms.

About half of the payments Savage Race received at events before the pandemic were in cash, which saved it from paying card swipe fees on them.


Steve Finkernagel/Seconds Ahead

The amount of Visa and Mastercard credit-card interchange fees paid by U.S. merchants actually fell last year, down 17% to $44.4 billion, according to the Nilson Report, an industry publication. But that was largely because people curbed their credit-card spending on things such as travel and restaurants during the pandemic. And costly online consumer credit-card transactions accounted for a greater share of all card volume, according to CMSPI, a merchants’ payments consulting firm.

Companies are also paying more in debit-card interchange fees. Debit has become a more popular payment option in the past year, with people wary of taking on debt in an uncertain economy.

Merchants paid $18.1 billion in Visa and Mastercard debit-card interchange fees last year, up 13% from the year before, according to the Nilson Report. Interchange fees on debit cards issued by large banks are capped by regulation, but card networks have broad discretion over fees on debit cards issued by smaller banks. Those cards also usually carry higher swipe fees when used online. The dollar amount of online consumer debit-card purchases as a share of all card payments is also up, according to CMSPI.

The fees have caught the attention of state lawmakers. New bills in at least three states—Mississippi, Oklahoma and Tennessee—call for interchange fees to be assessed on sales before taxes, lessening the burden on merchants. The fees are currently assessed on the total sales charge that includes taxes.

Interchange fees are also at the center of several long-running lawsuits filed by merchants against Visa, Mastercard and large issuing banks. That includes a lawsuit by dozens of merchants, including Inc.

and Costco Wholesale Corp., which alleges the card networks and issuers collude to keep interchange fees high. The card companies have denied the allegations.

Third-party delivery services such as Instacart and Shipt can also result in higher swipe fees for merchants. When consumers make purchases directly with a third-party delivery service, that company’s shopper often pays at checkout with a company card, which can charge higher fees.

Both online and third-party orders have surged at independently owned stores that are part of Wakefern Food Corp., a cooperative that includes ShopRite and Fairway Market.

Ken Grogan,

director of treasury services at Wakefern, said he encourages customers to pay the way that works best for them. “The issue is not the payment form,” said Mr. Grogan, who is also a board member of the Merchant Advisory Group, which represents merchants’ concerns in the payments sector. “It’s the rising fees credit-card companies charge retailers.”

Visa and Mastercard, the two biggest U.S. card networks, are also planning to raise credit-card swipe fees on some purchases in April, according to people familiar with the matter and a document reviewed by The Wall Street Journal.

The networks are expected to raise fees for many online transactions, according to the people and the document. Mastercard will also increase interchange fees when most rewards credit cards are used to shop inside small supermarkets. Visa is revising how it calculates fees for restaurants. Those that receive credit-card orders online could be more prone to fee increases.

Many of the price increases were supposed to kick in last year, but Visa and Mastercard said they delayed them because of the pandemic. Both companies said they also plan to lower some interchange fees, including on certain low-price transactions.

Visa said it would lessen at least some of the increase in the online interchange fees in October for merchants that enable its token service, which is geared at reducing fraud. The company said, “Digital payments provide businesses with numerous benefits including access to more consumers and new technologies to help them protect and grow their businesses.”

A Mastercard spokeswoman said: “We recognize the challenges merchants are facing and will continue to be thoughtful about the timing of implementation.”

Write to AnnaMaria Andriotis at

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