Illustration by Jandos Rothstein
This article is part of Countervailing Power, a joint series by The American Prospect and The Forge: Organizing Strategy and Practice that explores the ways organizers can use public policy to build mass membership organizations to countervail oligarchic power. The series was developed in collaboration with the Working Families Party, the Action Lab, and Social and Economic Justice Leaders.
In the middle of Elkhart, Indiana’s historic downtown strip, there’s a department store with black-and-white awnings and mannequins in the display windows. Inside, high school seniors pick out suits for the upcoming prom, and bridesmaids deliberate about dresses in front of full-body mirrors. Unofficially, Stephenson’s of Elkhart serves as a cradle-to-grave garment shop.
Elkhart, which hugs the Indiana-Michigan border about 90 miles from Chicago, prides itself as the RV capital of the U.S. Pass by a camper chugging along the highway or spot a mobile home park anywhere in the country and there’s a 95 percent chance those trailers were made in Elkhart. The store has been around for 91 years; the current owner is Danny Reynolds. His parents bought the place in 1964 and he grew up within its walls as a self-proclaimed “retail brat.”
With steady manufacturing employment, Elkhart survived the onslaught of deindustrialization that decimated so many other parts of the Rust Belt, but couldn’t escape the threat from within: retail behemoths and financial institutions marching in lockstep to clamp down on local enterprises. The town had the highest unemployment rate during the Great Recession, earning a reputation as a bellwether for the national economy, one of those “as goes Elkhart, so goes the nation” towns.
The first threat to small businesses like Stephenson’s was the Walmart-ification of America. Big-box stores throttled small retailers by flooding the market with low-price goods, subsidized by discounts the superstores can extract from their suppliers. In Elkhart, when Macy’s and Nordstrom moved in, many of the boutique shops that used to pepper the downtown strip shuttered; others barely scrape by. And that was even before Amazon came for brick-and mortar business altogether. Stephenson’s used to be a full department store but downsized to specialty services, mainly for proms and weddings, in order to adapt. Others weren’t so fortunate.
Today, small businesses face another attack, this time from Wall Street. Reynolds’s main concern is now swipe fees, which are the fees credit and debit card networks charge merchants for processing transactions. For over a decade, Reynolds and his colleagues on Main Streets around the country have watched their monthly billing statements climb because of these fees. In 2021, big banks, in coordination with the two credit card behemoths, Visa and Mastercard, took in over $130 billion from swipe fees (also called interchange fees), more than double what they reaped in 2010.
Reynolds and his fellow store owners in Elkhart are breathing new life into a nationwide campaign to take on Visa and Mastercard’s duopoly. The coalition is building on a signature victory from a decade ago that brought competition to routing for debit transactions but carved out credit cards. This swipe fee reform campaign still mobilizes around action in Washington, but with a more grassroots approach, in the hopes of creating lasting power to tackle other monopoly threats.
Courtesy Danny Reynolds
Stephenson’s has been a fixture on Elkhart’s Main Street for decades.
“What we’re fighting for is just to have a level playing field where there’s reasonable competition, not a monopoly,” said Reynolds.
VISA AND MASTERCARD ARE ABLE to turn the screws on merchants because they control over 70 percent of the credit card market. By blocking competition in transaction routing, these two giants can set swipe fee rates, which banks then collect from merchants for the cost of doing business with cardholders. These fees don’t reflect value or additional costs to Visa and Mastercard; the duopoly jacks them up simply because they can, serving as a private tax on all credit or debit card sales.
The pandemic and online commerce accelerated the shift from cash to contactless payment systems. Over 80 percent of sales at Stephenson’s are now with cards, similar to the national average. Some shops try to incentivize consumers to use cash through discounts or by providing ATMs, but most businesses like Stephenson’s can’t afford to turn away cards entirely.
After Visa and Mastercard issued another rate hike in April of 2022, Reynolds now pays 40 percent more in swipe fees than he did two years ago. In 2020, interchange fees paid jumped by 26.5 percent. Reynolds’s rate hovers around 2.5 percent for each sale. Swipe fees cost him more than utilities, and the cumulative annual sum nearly approaches labor costs. Some owners nearby pay even more, closer to 3.5 percent. That’s more than they pay in rent.
“Visa and Mastercard realized they had us cornered and took the opportunity to stick it to retailers,” said Reynolds.
The best Reynolds and other merchants can do is to pass off a portion of the fees to consumers in the form of higher prices. This can dampen sales demand and it also contributes to inflation. In fact, both Visa and Mastercard on recent earnings calls bragged about how beneficial inflation has been for their profits.
In Europe, businesses can access competitive routing options that dramatically lower fee costs. In America, it’s textbook anti-competitive behavior from a duopoly, which has thus far gone relatively unchallenged. But it’s reached a level where small businesses have no choice but to fight back.
THE PANDEMIC PUSHED MORE of Reynolds’s business online, conditioned customers to contactless payment, and led to higher swipe fees. But it also changed the landscape for organizing small businesses to fight common enemies.
Courtesy Danny Reynolds
Danny Reynolds, owner of Stephenson’s in Elkhart, Indiana
Retail is notoriously cutthroat. Still, store owners in Elkhart have known each other for decades. When lockdowns began, Reynolds and other local business owners set up weekly Zoom calls to help each other navigate the novel business climate, sharing updates from state government and exchanging tips on getting PPP loans. “We got on calls to trade war stories about running our shops, and inevitably it always ended up circling back to swipe fees,” Reynolds said.
Though swipe fees had been ticking up for years, it wasn’t until these weekly calls that Reynolds realized that his predicament wasn’t unique to his bank or transaction processor. It was happening to everyone. That’s when the businesses saw the fees for what they really were: a monopoly problem.
Shortly after this revelation, Reynolds and his colleagues joined up with the Merchants Payments Coalition, a nationwide network of store owners dedicated to combating predation by financial institutions. The coalition exclusively focuses on swipe fee reform, acting as a central hub to pool resources and organizing power. The coalition handles the conventional public-facing tools that one would typically associate with an interest group campaign: letter writing, call-ins, events, and face-to-face meetings with lawmakers.
Though founded over a decade ago, MPC’s efforts have undergone a resurgence since the pandemic, with a stronger grassroots presence. “There’s a lot of energy right now behind this issue and it’s only going to keep building as fees continue to go up,” said Doug Kantor, general counsel for the National Association of Convenience Stores and founder of the Merchants Payments Coalition. Kantor played a major role in the last major small-business struggle against the financial system rent-seeking in 2010.
During the legislative fracas around the Dodd-Frank financial reform bill, a collection of merchant groups and trade associations threw their weight behind a proposed amendment championed by Sen. Dick Durbin (D-IL). The Durbin amendment went after debit cards specifically, which were seeing the highest fee increases at the time.
Inevitably, the merchants squared off against the financial power of Wall Street in an all-out war, complete with millions of dollars in lobbying fees and attack ads. Durbin got the amendment included in the final bill, making two major reforms to debit card fees. It allowed the Federal Reserve to cap the charges, and also crucially forced banks to offer merchants competitive alternatives to Visa and Mastercard for transaction processing on debit swipes.
While the Fed policy endured years of legal challenges, competition in debit processing in large part brought down the fees, especially when compared to credit cards.
At the time, the battle over the Durbin amendment was cast as a showdown between big retailers like Walmart or Target and big banks. It’s true that small businesses and big-box stores band together in an uncommon alliance when it comes to swipe fees, because they hit both their bottom lines. But independents must spend a higher percentage of their overall costs on swipe fees. Many large retailers also leverage their power to strike agreements with Visa and Mastercard to negotiate discounts. Other retailers get left in the dust, facing fees that are exponentially higher than what they were in 2010.
THE SWIPE FEE REFORM CAMPAIGN is regaining its footing because of the types of calls Reynolds held with fellow shopkeepers in Elkhart. It turns out those conversations among shop owners were happening all around the country during the pandemic. At the same time, organizers were also going out into the field to harness this new energy among businesses and call for reforms to credit card fees, similar to what they achieved with debit cards a decade ago.
The trade associations at the center of the 2010 Durbin amendment struggle still anchor the campaign to curb fees. With long-standing networks, the National Retail Federation and NACS play a greater role trying to influence lawmakers on the Hill. Outside of Washington though, a newer crop of anti-monopoly organizations are connecting swipe fees to the broader industry concentration crisis crushing small businesses.
“We have a financial system that doesn’t work very well for ordinary people and independents because it’s disconnected from the real economy,” said Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, which helped assemble the Small Business Rising coalition. This nascent organization has blossomed into a large umbrella of local business groups and “Buy Local” consumer advocates. The coalition uses a grassroots model for its organizing tactics.
During the pandemic, field organizers went out into their communities to strengthen ties with small businesses when they needed help the most. Shawn Phetteplace currently works in Wisconsin for Main Street Alliance, a member of Small Business Rising, which increased its footprint during the pandemic by adding 1,200 store owners to its network. He explained to me how building trust among business owners is crucial because many small businesses feel either left behind or that their interests are constantly weaponized. Even JPMorgan Chase and Amazon have advocacy arms that claim to represent small businesses.
Phetteplace and fellow organizers in the coalition started by conducting surveys on the issues most important to store owners. Those surveys kept showing swipe fees as a major concern, and it soon became a top priority for the coalition, informing how Small Business Rising framed its advocacy work to lawmakers.
It’s no surprise that the monopolistic features of banking are highlighted more prominently in the messaging around swipe fees this time compared to 2010, when the neo-Brandeisian reformers were still an inchoate movement. “Supply chains and the impact of inflation have pushed higher costs onto small operators from large operators and it has increased the resentment among folks about monopoly power,” said Phetteplace.
Inflation has brought even more consumer groups on board with swipe fee reform, because so much of the charges gets passed on to consumers. According to several studies, recent increases in fees are costing households on average about $900 a year.
“Visa and Mastercard want to pretend they’re on the side of consumers by offering credit reward points but it’s all a ruse,” said Ed Mierzwinski, who runs the federal consumer advocate U.S. Public Interest Research Group (PIRG). “Everyone is paying more and getting poorer because of this market failure driving swipe fees.”
Bringing small businesses and consumer advocates together is crucial, because the two groups have not always shared the same priorities. For decades, corporations and their mouthpieces pushed the idea that large retailers would lower prices to the benefit of consumers, even if it killed off independents in the near term. But communities have seen the damage firsthand from a mass shuttering of independent stores. Even the initial promise of ever-lower prices for consumers has been disproven by recent price-gouging by large corporations including retailers during inflation and supply crunches.
Small Business Rising has targeted its arguments to lawmakers on swipe fee reform around those macroeconomic trends, while also telling localized personal stories about businesses’ struggles. They’ve assembled a broad array of store owners to deliver the campaign’s message to lawmakers directly.
“When you tell stories to policymakers, it makes it a lot harder for them to brush aside the issue you’re advocating for,” said Katy Milani, an organizer and policy advocate with the Institute for Local Self-Reliance.
The personal stories may tug at a lawmaker’s heartstrings, but they also carry a more forceful political undertone. “We’re making it very clear to legislators that a lot of business owners are going to vote based on this issue, and there’s more of us than the JPMorgans of the world,” said Phetteplace.
Confronting lawmakers directly is one of the only ways small organizations can leverage their power. Wall Street will always be able to outspend reform advocates, which is one of the main lessons small organizations took away from the fight over the Durbin amendment. However, it’s often challenging to find store owners who can take time to travel to Washington or to a state capital when they’re struggling to keep the lights on each day.
“Store owners are always working, so creating a broader net to draw from through Small Business Rising allows us to get people to go to statehouses or to Congress,” said Milani.
THE SWIPE FEE REFORM CAMPAIGN is rallying its network around one piece of legislation. During last year’s lame-duck session, Sen. Durbin tried to insert the Credit Card Competition Act into a last-minute spending package. The bill would essentially make the same reforms for credit cards as the original Durbin amendment did for debit cards. It would force competition into financial transaction providers, to break Visa and Mastercard’s chokehold and bring down fee rates.
The Merchants Payments Coalition and Small Business Rising went to the mat for the bill. They flew in a hundred business owners to Congress to speak with lawmakers. Reynolds was one of them. He was surprised by how much distortion the banks have created around the issue in Washington. Other store owners shared a similar assessment of their talks with legislators.
“Politicians just have no idea what it’s like to be a business owner and need to hear it from us directly,” said Jigar Patel, a convenience store owner in Birmingham, Alabama, who traveled to Washington to advocate for the Credit Card Competition Act.
While the bill didn’t end up passing, swipe fee reform advocates see an opportunity in this Congress because of its bipartisan support. Durbin leads the legislation but is joined by several Republican co-sponsors in both the House and Senate.
In the coming months, Small Business Rising plans to hold a number of teach-ins and letter-writing campaigns to push for the legislation. It’s critical for advocates that this reform gets done to continue building momentum behind the coalition.
“When you’re mobilizing people there’s a window of opportunity you need to seize or it’s going to lead to fatigue,” said Mitchell.
A victory on swipe fee reform would galvanize this triad of small businesses, anti-monopoly groups, and consumer advocates to address other pressing monopoly problems. Moving forward, organizers also plan to help local owners in their network run for office to build more power. One group in the Small Business Rising coalition, Main Street Alliance, has already started holding sessions to teach their members about how to file for political campaigns.
“If lawmakers aren’t going to listen then we have to do it ourselves,” said Phetteplace.
In the near term though, Reynolds and his neighbors in Elkhart don’t really have another option than to pressure lawmakers to take action. Almost 20 years ago, when swipe fees began to climb, a group of retailers saw the writing on the wall and opted for a nonpolitical solution. They launched their own platform, the Merchant Customer Exchange, outside of the control of the banks, to process credit and debit transactions. Despite their best efforts, it was no match for Visa and Mastercard.
Today, the IP rights to that now-defunct platform are owned by JPMorgan Chase, which bought out the company in 2017.
