The Independent Restaurant Coalition is urging Congress to pass the Credit Card Competition Act, which would introduce reforms to credit card transaction fees that currently burden independent restaurants and bars. As credit card processing costs continue to rise, small and mid-sized establishments struggle to absorb these fees, which threaten their already narrow profit margins. The time for meaningful legislative action is now to prevent independent restaurants from being further squeezed by monopolistic credit card companies.
The Growing Burden of Credit Card Fees
Credit card fees have become a significant financial strain on independent restaurants and bars. In 2023, credit card processing fees in the U.S. exceeded $160 billion, a figure that has been steadily increasing in recent years. On every credit card transaction, restaurants are charged interchange fees (commonly referred to as "swipe fees") that average between 2% and 4% of the transaction total. These fees disproportionately affect smaller businesses, which often operate on slim profit margins of 5% or less.
Visa and Mastercard dominate the credit card market, controlling around 80% of credit card transactions in the U.S. With little competition in the industry, these companies set the terms, leaving independent businesses with few options to reduce their processing costs. The lack of competition stifles innovation and prevents smaller restaurants from negotiating better rates or leveraging alternative payment systems.
Impact on Independent Restaurants and Bars
For independent restaurants, which typically have fewer resources than larger businesses, credit card fees represent a significant operating cost. High swipe fees reduce the amount of revenue a restaurant can keep from each sale, cutting into already slim margins. Over time, these costs add up, forcing many small businesses to make tough choices, such as raising prices or cutting staff hours, just to remain viable.
In addition to the financial strain, the lack of competition among credit card processors results in inflexible terms and limited opportunities for cost-saving innovations. Independent restaurants have limited leverage to negotiate better deals, and they often cannot afford to implement expensive proprietary payment systems that larger chains might use to offset transaction fees.
The Need for Congressional Action
The IRC is calling on Congress to pass the Credit Card Competition Act, a crucial piece of legislation that would introduce much-needed reforms to the credit card processing industry. The act would promote competition by allowing merchants, including independent restaurants, to choose between multiple credit card routing networks for processing transactions. This competition would drive down fees, create more transparency, and ultimately benefit both businesses and consumers.
Key Reforms of the Credit Card Competition Act
The Credit Card Competition Act aims to level the playing field for small businesses by introducing the following key reforms:
- Multiple Network Access: The act would require banks to provide merchants with access to at least two unaffiliated networks for processing credit card transactions. This would break up the current dominance of Visa and Mastercard, allowing merchants to choose lower-cost processing options.
- Fee Transparency: Credit card processors would be required to disclose all fees associated with a transaction upfront. This would increase transparency and allow restaurants to better understand the costs they incur, enabling more informed decisions about payment processing options.
- Increased Competition: By fostering competition among credit card networks, the act would drive down interchange fees, benefiting independent businesses that currently face inflated processing costs. Increased competition would encourage innovation, leading to more cost-effective payment solutions for small businesses.
- Enhanced Consumer Protections: The act would also introduce safeguards to protect consumers from hidden fees and deceptive practices in the credit card industry. This would ensure that both businesses and consumers are treated fairly.
Why This Matters for Independent Restaurants
The passage of the Credit Card Competition Act is critical for the survival of independent restaurants and bars. With tight margins and increasing operating costs, independent businesses are especially vulnerable to rising swipe fees. Reducing these fees would allow restaurants to reinvest in their operations, retain employees, and keep prices affordable for consumers. By introducing competition into the credit card processing market, the act would give independent restaurants more control over their costs and provide much-needed financial relief. Specifically:
- Lower Operating Costs: Reduced interchange fees would directly lower operating expenses for restaurants, freeing up capital for other investments, such as staff wages, kitchen upgrades, or marketing.
- Increased Profitability: Lowering transaction fees would boost profit margins, making it easier for independent restaurants to remain competitive and financially stable in a challenging market environment.
- Fairer Competition: By allowing independent restaurants to access lower-cost processing networks, the act would help level the playing field between small businesses and large chains, which often have access to proprietary payment systems that minimize costs.
The current credit card processing system disproportionately impacts independent restaurants and bars, placing an undue financial burden on businesses that operate with slim profit margins. The Credit Card Competition Act presents an opportunity to introduce real competition into the credit card market, giving independent businesses the tools they need to lower costs and thrive.