Credit Card Fees Bite Family Budgets, Analysis Shows

In 2020, households paid $724 for merchant fees whether they used cards or not

Woman paying for jewelry with contactless payment technology in a clothes store

Alistair Berg/Getty Images

If you celebrated Cyber Monday with a shopping spree, a good deal of your tab probably went to cover credit card transaction costs—even if you didn’t pay with plastic, according to a new analysis.

The average U.S. household paid $724 a year for credit card fees in 2020, whether or not they used cards, an industry expert says. That’s $261 more than in 2012, and it’s likely to go even higher for 2021 because of inflation and increased spending. It’s all because merchants have no choice but to raise prices for everyone to cover the cost of the fees they’re required to pay big credit card companies to process transactions, according to an analysis by CMSPI, an independent global payments consultancy. 

Payment processing giants like Visa and Mastercard typically take an average cut of around 2.2% for swiping a card (whether at a store or online), and merchants pass about 70% of that cost along to customers in the form of higher prices, said Callum Godwin, chief economist at CMSPI.

The average household cost, which the consulting firm partly calculated using annual data on credit card fees from global payments analyst Nilson, highlights a longstanding criticism of credit card companies—that they transfer wealth from low-income households to better-off ones. Higher-income households are apt to have good credit and reap cash and other perks from credit card rewards programs. Lower-income families are less likely to benefit that way, but still have to pay the higher prices that merchants charge because of credit card fees. 

“There’s a perverse effect, almost, of the poor giving to the rich,” Godwin said.

By Godwin’s analysis, a lack of competition among big payment companies keeps transaction fees as high as they are. Merchants and consumer groups have voiced similar complaints. 

“Even merchants have very little control over this system,” Godwin said. “We think the only way for a lot of the issues to be properly solved is through some kind of regulatory intervention that promotes competition.”

Credit card companies dispute the criticisms. For example, a report earlier this year from the American Bankers Association, a trade group representing credit card companies, found that merchants came out ahead on fees for rewards cards because the value of the services they paid for—such as security and avoiding the expenses of handling cash—actually outweighed the costs.

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  1. Federal Reserve Bank of Boston. “Who Gains and Who Loses From Credit Card Payments? Theory and Calibrations.”

  2. American Bankers Association. “The Benefits of Credit Card Rewards.”

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