The US House introduction of the Credit Card Competition Act has been welcomed by industry associations.
- Representatives Peter Welch (Dem-Vermont), and Lance Gooden (Rep-Texas) introduced the Bill in the House Monday, less than two months after the same measure was introduced in the Senate as S. 4674 by Senators Richard Durbin (Dem-Illinois) and Roger Marshall (Rep-Kansa).
- The introduction comes a week after more than 200 merchant trade associations and nearly 1,700 merchant companies—including hundreds of small businesses—wrote to all members of the House and Senate asking them to support or cosponsor the measure.
The backdrop: The bill would address “swipe” fees averaging over 2% of the transaction that banks and card networks like Visa and Mastercard charge merchants to process credit card transactions.
- Credit and debit card swipe fees have more than doubled over the past decade, soaring 25% last year alone to a record $137.8 billion. They are most merchants’ highest operating cost after labour and drove up consumer prices by about $900 a year for the average family last year.
- Visa and Mastercard, which control more than 80% of the credit card market, centrally set the swipe fees charged by banks that issue cards under their brands and those banks do not compete with each other on price.
- Visa and Mastercard also restrict processing to their own networks, prohibiting competition from other networks that can offer lower fees and better security and resulting in the highest swipe fees in the industrialised world.
- The legislation would require that credit cards issued by the largest banks in the US be enabled to be processed over at least two unaffiliated networks—Visa or Mastercard plus a network such as NYCE, Star or Shazam.
- Domestic credit card networks like American Express or Discover could also be the second network, but not networks supported by foreign governments like China’s UnionPay.
- (UnionPay already sits on the governing boards of the Visa- and Mastercard-controlled EMVco standards-setting group and the Payment Card Industry Security Standards Council and, under current law, could be chosen by any bank to process Visa or Mastercard transactions.)
- The banks would decide which two networks to enable on a card and then merchants would be allowed to choose which of the two to use when a transaction is made. That means networks would have to compete to offer the best pricing, security and service.
- The Bill would apply only to financial institutions with at least $100 billion in assets—about 30 of the largest banks in the US and just one credit union but 90% of Visa and Mastercard credit card volume—and would have no impact on community banks or small credit unions.
- Competition over the processing of credit card transactions could save retailers and their customers at least $11 billion a year, according to payments consulting firm CMSPI. The measure would apply only to banks with $100 billion or more in assets and would have no effect on local community banks or small credit unions. Credit card rewards would not be affected because those are determined by banks that issue cards, not the networks that process transactions.
- In addition to lower fees and better security, adding a second network to credit cards would provide a backup when Visa and Mastercard’s networks have disruptions, ensuring continuity at a time when an increasing number of consumers rely on cards rather than cash.
- Swipe fees for Visa and Mastercard credit cards currently average 2.22% of the purchase amount, according to the Nilson Report. The fees amounted to $77.5 billion in 2021, triple the $25.6 billion charged in 2009.
- Swipe fees are among merchants’ highest costs after labour and drive up prices paid by consumers by an estimated $900 a year for the average family. When all brands and types of cards are included, the fees totalled $137.8 billion in 2021, more than double the amount a decade earlier, according to Nilson.
What they said:
Lawmakers from both sides of the aisle and both chambers of Congress are alarmed by how skyrocketing swipe fees are driving up prices for consumers and recognize the need for competition. Making networks compete over who gets to process transactions will make a huge difference in bringing these fees under control and will strengthen the security and reliability of the credit card system at the same time.
— Leon Buck
Vice-President (Government Relations, Banking and Financial Services)
National Retail Federation
US swipe fees are the highest in the industrialized world and the card industry wants to keep them hidden so American families don’t know how much they’re paying. This legislation would make card networks compete and give them incentives to improve service and security while keeping costs in check. It would also close a glaring security gap that today allows any bank to follow the lead of Visa and Mastercard by bringing China’s UnionPay further into US payments.
— Doug Kantor
Executive Committee member
Merchants Payments Coalition
