Merchants Say Credit Card Legislation Would Introduce Long-Awaited Competition While Saving Consumers Billions
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The Merchants Payments Coalition welcomed the introduction of bipartisan legislation sponsored by Senators Richard Durbin and Roger Marshall that would let merchants choose which payments networks process credit card transactions, saying the measure would create long-sought competition that could save businesses and consumers billions of dollars a year.
“This landmark bill would end a part of the Visa-Mastercard duopoly that has blocked competition for decades,” MPC Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor said. “By requiring card networks to compete over who gets to process a transaction, exorbitant fees that have skyrocketed could finally be brought in touch with reality. This is a solution that would let a free, fair and competitive market determine prices in the payments industry just as it does in virtually every sector of the economy.”
“American merchants pay the highest credit card processing fees in the industrialized world and those fees ultimately cost the average family hundreds of dollars a year,” Kantor said. “As a percentage of the transaction, the fees go up along with prices and create a multiplier effect for the near-record inflation faced by American families today.”
Durbin, an Illinois Democrat who chairs the Senate Judiciary Committee, and Marshall, a Kansas Republican who serves on the Senate Small Business and Entrepreneurship Committee, today introduced the Credit Card Competition Act. The legislation would require that credit cards issued by the largest U.S. banks be able to be processed over at least two unaffiliated card payment networks, and that merchants be allowed to choose which to use. One network could be either Visa or Mastercard but the other would have to be an unaffiliated competitor such as another credit card network or one of a dozen independent payment networks like Star, NYCE or Shazam that have better security and charge lower fees.
Visa and Mastercard, which control 80 percent of the multitrillion-dollar payments market, set not only their own network fees but also the “swipe” fees charged by the banks that issue their cards. In addition, Visa and Mastercard currently only allow transactions on their credit cards to be processed over their own networks, barring smaller competitors from the market. The bill would apply only to cards issued by banks with $100 billion or more in assets – fewer than three dozen institutions but about 90 percent of Visa and Mastercard credit card volume – and would have no impact on small community banks.
According to the payments consulting firm CMSPI, competition over credit card processing could save merchants and their customers $11 billion or more a year. A 2010 federal law requiring similar routing choice for debit cards has saved merchants an estimated $9.4 billion a year with 70 percent of savings passed along to consumers.
Introduction of the bill follows a May Judiciary Committee hearing where Durbin said credit card swipe fees are a cost that “fuels the fires of inflation across America every day.” Prior to the hearing, Durbin, Marshall and bipartisan House colleagues asked Visa and Mastercard to withdraw a planned $1.2 billion increase in “swipe fees” but the companies refused and imposed the increase even though Americans are experiencing inflation at a 40-year high.
Swipe fees for Visa and Mastercard credit cards currently cost merchants an average 2.22 percent of the transaction. The fees have increased dramatically in recent years, tripling from $25.6 billion a year in 2009 to $77.5 billion in 2021, according to the Nilson Report. American businesses pay swipe fee rates seven times as high as businesses in Europe and five times as much as businesses in China.
Credit and debit processing fees are most merchants’ highest operating cost after labor, totaling $137.8 billion a year for all types and brands of cards as of 2021. That was up 25 percent from the year before and was more than double the amount collected a decade earlier. The fees drive up prices paid by consumers, amounting to an estimated $900 a year for the average household.
The bill prohibits any interference with where merchants route credit cards for processing, including any requirement that proprietary mechanisms owned by Visa or Mastercard be used unless the mechanisms are available to all networks. The Department of Justice is currently investigating whether Visa has violated antitrust laws by limiting merchants’ ability to route debit transactions while the Federal Trade Commission is investigating both Visa and Mastercard.
The Merchants Payments Coalition represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants.