A credit card swiping through a reader: For dealers and retailers, that’s the sound of sweet success. But in some states, that familiar swoosh also reverberates with processing fees.

“One member told me they had $82,000 per year, just in swipe fees,” says Jonathan Paine, president and CEO of the National Lumber & Building Material Dealers Association (NLBMDA). “It used to be the fourth or fifth level expense on their expense sheet. Now it’s number two, behind labor.”

When a customer swipes, taps, inserts their credit card, or types in their digits to pay online, merchants and banks route related financial and transactional information over a network for processing. As a result, businesses are charged processing fees—the costs of which have gone up in recent years. A new bipartisan bill seeks to lower those fees by encouraging competition.

The Credit Card Competition Act (H.R. 3881/S.1838) would provide companies with access to more payment network options, beyond the obvious two: Mastercard and Visa. NLBMDA is urging its members to support the bill, as are other industries and associations—including the National Restaurant Association, which reports that processing fees are the third largest operating expense for most restaurants after food and labor.

For building material dealers, however, the stakes are much higher, suggests Kevin Brooks, owner of Future Design Building Materials in Leitchfield, Kentucky.

“This is much different than the food industry because that purchase is small and it doesn’t affect the consumer as much,” Brooks says.

According to the Merchants Payments Coalition (MPC), Visa and Mastercard control 80% of the U.S. credit card market. As a result, “Each centrally set the swipe fees charged by banks that issue cards under their brands, and also block transactions from being processed over other networks that could do the job with lower fees and better security,” MPC officials suggest. While there are as many as a dozen other networks that could process card transactions, the duo has “blocked them from entering the market,” NLBMDA officials allege.

H.R. 3881/S.1838 would require the Board of Governors of the Federal Reserve System to prohibit certain card issuers with assets in excess of $100 billion from restricting the number of networks through which transactions may be processed. Allowing more payment processing services into the mix would increase competition, which, in turn, many feel would help to reduce fees.

“Competition is foundational to a free market but, unfortunately, there is none when it comes to how credit card transactions are processed in the United States,” a statement from MPC says. Meanwhile, processing fees have “more than doubled over the past decade and soared to a record $172 billion in 2023, up from $161 billion in 2022 and $138 billion in 2021,” the association reports. According to MPC, in April 2022, Visa and Mastercard increased their swipe fees by nearly $1.2 billion per year.

H.R. 3881/S.1838 would require big banks to allow any credit cards they issue to be processed over at least two unaffiliated networks, allowing for competitors such as Shazam and Discover to join Visa and Mastercard.

“All this legislation does is allow for more options,” Paine says. “It doesn’t say don’t use Visa or Mastercard. It just says Visa, Mastercard, you need to open up the market for small businesses to have more options.”

On the Other Side of the Card

While some businesses include a convenience charge to recoup processing fees, in some states the practice is illegal. At the same time, dealers who are allowed to charge convenience fees often are reluctant to do so, Paine says, for fear of losing an edge to big box retailers, which are more than happy to absorb the costs, he says.

“I can’t charge the credit card fee to the consumer if my competitors are not,” Brooks says.

But some door and window dealers have reversed the dilemma by building swipe fees into their pricing, while offering discounts on cash purchases as a system for positive reinforcement.

“I think it makes a much better customer experience,” says Chris Hill, CEO of Tigard, Oregon-based Brightside Windows. “In fact, I’m very much against formally making customers sign disclaimers that they’re going to have to pay a processing fee for using a credit card because it makes the rather large purchase feel even more expensive and makes the dealer potentially appear cheap and stingy.”

Some customers are excited by the opportunity to earn points or sky miles, Hill says. But for those who are willing to pay by check, “We offer a cash discount to make sure we’re never overcharging a customer and that they feel like they got an even better deal,” he says. “So, it’s all about doing good business and making the most of the customer experience.”

Those types of cash incentives have steered more door and window customers away from using credit cards, says Tara Novotny, vice president of Windows On Washington, in Dulles, Virginia. In the past, point-based benefits for credit card usage led as much as 90% of her company’s customers to pay by card. As a result, “We would pay thousands of dollars in fees a month to credit card companies,” she says. But, “Those benefit cards also naturally carry higher processing fees,” she adds. “We decided to offer a cash discount for any clients paying by check and it took off. We basically say if we don’t have to pay the credit card company processing fees—which, in theory, is yet another cost of doing business—we will pass that savings directly on to the client.”

Now 90% of her company’s customers pay by check, Novotny says. The other 10% use financing. “We avoid the typical credit card fees altogether,” she says.

For those who find processing fees unavoidable, H.R. 3881/S.1838 would save businesses and customers through increased competition, NLBMDA officials suggest. Banks would choose which networks to enable for their cards, allowing dealers to decide which they want to use. That could save businesses and customers as much as $15 billion per year, the association estimates.

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