Large retailers such as
The Home Depot
have come out in favor of a proposed bill that aims to break the hold that
have on credit card swipe fees. But whether it gets passed is unclear.
This week, 1,668 retailers and more than 200 trade organizations urged Congress to pass the The Credit Card Competition Act, which gives merchants a choice in the routing of credit card transactions to networks other than
according to a Sept. 13 letter.
The bill aims to increase competition, while cutting the fees merchants pay when they accept the credit cards, The Wall Street Journal reported.
“The Credit Card Competition Act would bring much-needed relief to retailers and American consumers by simply requiring that Visa and Mastercard compete with other networks for both merchant and bank business,” the Merchants Payments Coalition, which represents merchant trade groups, said in the letter. (MPC also sent a second, similar letter to Congress that was signed by the trade associations on Wednesday.)
(ticker: V) and
(MA) were largely unaffected by the proposed legislation. Visa closed Wednesday at $199.41, down 13 cents, while Mastercard gained 41 cents to close at $325.85.
Credit card transactions are currently processed by the four major payments networks: Visa, Mastercard,
Discover Financial Services
(DFS). But Visa and Mastercard control a majority, more than 80%, of the US credit card market and don’t face competition from other service providers for the merchant business, the trade group said in the letter.
This drives up prices for US merchants and consumers, which paid nearly $138 billion in credit and debit card fees in 2021, said MPC, which organized the letters to Congress.
The Credit Card Competition Act of 2022, introduced by Sen. Richard Durbin (D., Ill.) and Sen. Roger Marshall (R., Kan.) in July, aims to change this scenario. The bill requires that at least two unaffiliated networks be available for credit card processing. This can be Visa or Mastercard plus another network such as NYCE, which is backed by
); Star, the debit payments network from
(FISV), or Shazam, the letter said.
or Discover could be the second network, but not networks supported by foreign governments like China’s UnionPay, MPC said. The bill would apply only to financial institutions with at least $100 billion in assets; this represents about 30 banks in the US and one credit union, said J. Craig Shearman, MPC’s spokesman.
Visa and Mastercard didn’t return messages for comment.
Jeffrey Tassey, chairman of the Electronic Payments Coalition, which represents card issuers and networks, is strongly opposed to the legislation. “It takes the choice out of the hands of the consumer in terms of routing and destroys the value of the global electronic payments systems,” he told Barron’s.
Consumers don’t think about routing, and what networks are used to process credit card payments, he said. But if they did, they would likely pick a network that they have used for years with no problem versus an unknown one, Tassey said.
Right now, a transaction made on a Visa card can only be processed on a Visa network and the same holds true for Mastercard, said MPC’s Shearman. “That is not a technical function but simply that Visa and Mastercard block any other network from handling their transactions,” Shearman said.
Moshe Katri, a fintech analyst with Wedbush Securities, said there are six to seven platforms, other than Visa and Mastercard, that can process debit transactions. But there are no viable alternatives to Visa and Mastercard when it comes to processing credit transactions, he said. “Furthermore, there is no infrastructure ready to support having two optional credit processing networks on credit cards. Bottom line, beyond the political noise, this is impractical,” Katri said of the proposed legislation.
MPC’s Shearman disagrees. There are about a dozen other networks, such as NYCE, Star and Shazam, that can handle credit card processing, he said. These networks charge lower fees and offer better security, Shearman said. “These networks have, or could very easily have, the capability to process credit card transactions,” he said.
The legislation also aims to bring savings for merchants and consumers. Credit card fees are the biggest operating costs for merchants after labor, MPC said. They also cost the average American family $900 in 2021. Introducing competitive networks would save US consumers and merchants $11 billion annually, MPC said citing estimates from a payments consulting firm. The $11 billion saved is a fraction of the nearly $138 billion made by issuers and networks, Shearman said.
Darrin Peller, an analyst with Wolfe Research, said it’s unlikely the Senate will make any progress on the bill before the midterm elections in November, according to a July 27 note. The legislation is also unlikely to receive enough support in the House, especially if the Republicans take control and even if Democrats retain a majority, Peller said in the note.
“We think there is time to get it done before the end of the year,” MPC’s Shearman said.
Write to Luisa Beltran at firstname.lastname@example.org