Despite Their Claims, Visa and Mastercard Can More Than Afford Swipe Fee Reform

July 08, 2024

A recent analysis of the 500 U.S. corporations generating the most profit per employee found investment firms, energy companies, and Big Tech dominating the list — reporting extraordinary profits with relatively small workforces. Also high on the list: banks and financial institutions, which is particularly timely given that companies like Visa and Mastercard have been pleading poverty in response to recent legislation in Congress that would curb their ability to raise junk fees on retailers and consumers.

According to the research compiled by 24-7 Wall Street, Visa is the 21st-most profitable company on a per employee basis, recording over $600,000 in profit for every worker. Mastercard, meanwhile, came in at No. 41, generating nearly $355,000 in profit per employee.

But while Visa and Mastercard report these massive profits as they rake in more and more hidden fees, they are simultaneously portraying themselves as the victims of legislation designed to protect consumers and retailers and boost competition in the credit card industry.

That legislation is the bipartisan Credit Card Competition Act (CCCA), which aims to limit swipe fees (also known as interchange fees) that Visa and Mastercard are allowed to charge retailers nearly every time a customer uses their credit card to make a purchase.

Ironically, megabanks have claimed that if this legislative initiative were to pass, the subsequent “belt-tightening” in response might diminish or outright kill loyalty points programs that customer accrue on their customers’ rewards cards. This assertion is outright laughable given the immense profits they are generating per employee. Meanwhile, small businesses owners and franchisees record a fraction of these profits. To put it into perspective, the average traditional retailer earns around $5,000 in profit per employee while restaurants often earn much less.

This is why swipe fees of up the 3.5 percent of purchases charged by Visa and Mastercard hurt small businesses in particular, when every penny of profit counts to stay afloat. While this would equate to a mere rounding error in Visa’s and Mastercard’s profits, they represent a significant hit for smaller companies.

Most often than not, elected officials and regulators face tough choices and have to balance many factors to find the best outcomes for stakeholders and their community. Fortunately, that is not the case when it comes to advocating for the Credit Card Competition Act. This is an easy one. Elected officials have the choice of siding with Main Street businesses and their local communities, or siding with Wall Street and their predatory, anti-consumer practices. They have the choice of supporting companies that make over half a million dollars in profits per employee or with small retailers making just 1 percent of that profitability. They can either embrace the current system that is further enriching the banks or reject it and protect small business owners, many of whom still haven’t recovered from the pandemic. There’s really no middle ground.

But for those leaders and consumers inclined to defend and support the existing Visa-Mastercard credit card duopoly that allows them to charge ever-increasing swipe fees, I urge them to be honest with themselves. We are a capitalist country that celebrates “free markets,” after all: If leaders have a “let the market decide” perspective or if they believe in the idea of “letting the big dog eat,” that’s fine.

What is unacceptable, however, is demeaning an important conversation about the viability of electronic payment systems going forward, security protections for consumers, loyalty programs and the crushing impact of swipe fees on retailers. All of these are serious subjects and should be treated accordingly. But pretending that some of the most profitable companies on the planet would suddenly be financially compromised if passage of the CCCA threatened their insidious duopoly eliminates any credibility the banks and credit cards might be afforded on this issue.

Visa and Mastercard’s six-figure profit per employee could address any required changes within their institutions without hurting their future offerings one bit. Small businesses forced to pay higher and higher swipe fees don’t have the same luxury.

Americans for a Modern Economy is committed to ensuring that local, state and federal policies reflect changing technologies that are reshaping the way consumers, businesses and communities operate in the 21st century economy. We work with consumer advocates, businesses, think tanks, economic experts and others to raise awareness and inform discussions about the current and future policy challenges of new technology. We serve as a resource for lawmakers to help them develop modern policy solutions that benefit all Americans by expanding consumer freedom, allowing businesses to best serve their customers and preserving free market competition.