In a groundbreaking move to revolutionize the credit card processing landscape, a bipartisan push in Washington is set to clamp down on credit card fees, potentially reshaping the industry’s dynamics. The Credit Card Competition Act, recently reintroduced in Congress, has ignited a fierce battle between retailers and major network payment processors, with both sides vying for the attention of consumers.
Credit Card Competition Act
The proposed legislation aims to promote competition among credit card processing networks by mandating big banks to allow at least one alternative network, aside from Visa or Mastercard, to be used for their cards. This shift is expected to empower merchants by providing them with a choice they seldom encounter—reducing the burden of interchange fees that they currently pass on to customers, ultimately leading to higher checkout prices.
Enthusiastically backing the bill are prominent retailers, including Amazon, Best Buy, Kroger, Shopify, Target, and Walmart, along with nearly 2,000 other businesses, platforms, and small enterprises. The supporters of the act argue that credit card processing costs are negatively impacting consumers. According to them it is driving up overall business expenses and increasing the final prices shoppers pay at the checkout counter.
On the opposing side, major credit card processing networks such as Visa, Mastercard, Discover, and Capital One contend that the proposed legislation could have adverse effects on consumers. They predict that popular credit card rewards programs may be diminished, and fraud protections could weaken if the bill is passed.
Visa – Mastercard duopoly
Currently accounting for a staggering 80% of all credit card volume, Visa and Mastercard’s duopoly in the market has drawn criticism from Senator Dick Durbin, D-Ill., one of the bill’s sponsors and its most vocal advocate. Durbin argues that introducing competition into the credit card network market will help reduce swipe fees, easing the burden on Main Street merchants and benefiting their customers.
According to the Nilson Report, swipe fees have more than doubled in the last 10 years, hitting a record $160.7 billion in 2022. On average, credit card swipe fees in the United States amount to 2.24% of a transaction. In order to combat this, some businesses have started imposing surcharges on customers paying with debit or credit cards to incentivize cash transactions.
The Credit Card Competition Act is set to make it mandatory for banks with assets over $100 billion to provide customers with at least two different payment networks for processing credit card transactions. Moreover, Visa and Mastercard will be restricted to only accounting for one of the choices, ensuring that merchants have access to a more diverse range of options.
While proponents of the bill anticipate it will bring more transparency and flexibility to the credit card processing industry, opponents argue that it may mislead consumers. Critics contend that customers may mistakenly believe their Visa or Mastercard credit card is processed through the respective network, while it could actually be routed through a cheaper, less secure network, possibly leading to fewer rewards and weaker fraud protection.
Despite differing opinions on the potential outcomes, the Credit Card Competition Act has garnered significant bipartisan support since its introduction. While no vote is scheduled on this legislation in Congress as of yet, reports suggest that it could happen before the year’s end.
If passed, the legislation promises to usher in an era of innovation and lower fees for businesses, with startups like Tandym already paving the way. By creating alternative networks and offering lower interchange fees, such innovative ventures aim to empower merchants to pass on savings to customers in the form of loyalty programs, providing a win-win situation for both parties.
