To swipe or not to swipe: small business payments

Unless an organization is a non-profit, generating revenue is every company's raison d'être. To make an income, businesses need to collect money from their consumers.

Traditionally, cash and checks were kings. Now, as the world becomes increasingly digitized, every small business must accept digital payments. This means buying and using a card machine to service their customers who do contactless payments with credit cards and even smart devices connected to their banking profile.

However, this isn't as straightforward as it may seem. Small businesses are currently grappling with a potentially crippling credit card monopoly and desperately need alternative payment options. Let's take a look:

Main and Wall Street's iron grip

Credit cards are almost always powered by one of two companies: Visa and Mastercard. In fact, according to CNBC, these two financial giants control approximately 80% of the credit card market. That's true for credit card facilities used to accept cardholders' payments, too.

Why is this a problem for small business owners? Simply put, these corporations have steadily been increasing swiping fees, doubling them over the past decade. That means that every time a buyer uses their card at a small business, the owner foots a larger portion of the bill. More and more of a company's revenue is going toward paying credit card companies for the privilege of facilitating their clients' financial transactions.

As explained by Prospect.org, Visa and Mastercard earned over $130 billion from swiping fees in 2021 alone. But, small business owners have no choice. Their consumers aren't prepared to go back to using paper to pay. So, what's the solution?

Searching for greener pastures

Small businesses can attempt to offset this expense by increasing their goods or services prices, but that would likely only deter sales. Some have started offering discounts for cash payments in the hope of bringing down card swiping expenses.

Still, it's not enough. Fortunately, other credit card companies, tech start-ups and legislation may ease the burden on small business owners. Per AP news, American Express, for example, has introduced Business Blueprint, a suite of digital banking services that includes card payments at potentially much lower fees than Visa or Mastercard.

The Credit Card Competition Act of 2022, largely championed by the Merchants Payments Coalition might be entrepreneurs' saving grace. Should it be passed, it could require banks to process cards through at least two different networks. This competition would theoretically lead to lower swiping fees in the hope of securing more customers.

For now, however, small business owners will have to find alternative ways to cut costs to accommodate exorbitant swiping fees. If you're a small owner concerned about financing legalities, reach out to the Law Offices of Donald W. Hudspeth, P.C. for advice.

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