Taking a Swipe at Your Third Highest Cost

According to Sean Kennedy, the National Restaurant Association’s (NRA) executive vice-president of public affairs, credit card payment processing fees are the third highest cost for restaurants. They have doubled in the past decade and are up 20% during the past year.

Of course, if you run a restaurant, you are already familiar with the costs of credit card “swipe fees”. The numbers are staggering enough on your P&L, let alone on a national scale. US credit card transaction volume hit over $3 trillion in 2022. Merchant paying payment processing fees totaled nearly $160 billion, according to Kennedy.

Eighty percent of credit card transactions are controlled by two major credit card processing companies. The market influence of these companies is significant enough to be characterized as a duopoly. Lack of competition in the credit card payment processing market does not encourage innovation and rivalry for customers that can check swipe fees. Restaurant and retail advocates, including the NRA, are fighting at the federal and state levels for legislative reform to lessen the impact of swipe fees on operators and consumers.

I might argue that credit card payment processing is as vital to commerce today as were railroads in the 1890s, when the Sherman Act was passed. Let me be clear, however; I am unaware of any allegations that the two major credit card companies are involved in the kind of collusion or effort to restrain trade, of which railroad owners were accused at the turn of the 19th century, when Congress passed the first antitrust law, the Sherman Act.

My point is not to vilify the major credit card processors. Like all businesses, they have a duty to shareholders to maximize their profits. I also argue that they also have a duty to their stakeholders – including restaurants and dining consumers.

And to be fair, credit card payment processing fees are not the only pressures facing the restaurant industry. We are struggling with unprecedented challenges in the supply and costs of goods and labor that cannot be easily tamed by government fiscal or monetary policy. That said, stemming increasing credit card swipe fee costs is within the control of government. And I will also argue it is within the control of the credit card processing sector -- if only to avoid solutions by legislative brute force.

The Credit Card Competition Act of 2022 was not passed last year, but its primary goal -- for banks to offer more credit card networks for transactions -- still has support among merchant advocates and members of Congress. As noted by the NRA, there is also state legislation addressing this issue. As noted by the Association, there are nine states with legislation to remove the sales tax from being included in the swipe fee computation—Florida, Georgia, Idaho, Maine, Mississippi, North Dakota, Tennessee, Texas, and Washington.

The NRA and the restaurant associations in these states plan to support these bills, and other states may introduce similar legislation this year. The calculation to remove sales tax from the total check is a simple equation: total sales amount minus sales tax equals net sales. The net sales amount becomes the basis for the interchange fee.

A thorough discussion of the economic and legislative issues surrounding credit card processing fees goes well beyond the space of this article. Simply put, reducing swipe fees would have significantly reduce the cost of running a restaurant. And you already know that.

If I can offer any practical advice (after all, Restaurant Startup & Growth and RestaurantOwner.com are in the business of restaurant management best-practices education) it is to stay current with economic and legislative developments that affect your business and to support your national and state restaurant associations. They work on your behalf. The Association 2023 restaurant sales forecast is $997 billion. You are part of a massive industry.

I encourage you, as an independent restaurateur, to keep abreast of the issues and make your voice heard.