A bipartisan effort in Washington to restrict credit card fees has caused strain between retailers like Walmart and network payment processors like Visa. Since the Credit Card Competition Act was proposed in 2020, backing for it has skyrocketed. Senator Dick Durbin (D-Ill.) commented, “It is past due to introduce competition into the credit card market in which Visa and Mastercard have a duopoly.”
A renewed bipartisan effort in Washington to curb credit card fees has pitted merchants against network payment processors. Both sides are striving to attract the attention of customers. The Credit Card Competition Act was presented again last month in the House and Senate after no vote was taken on it in either chamber during the last Congress. The intention of the law is to increase the competition among credit card processing networks by requiring banks that hold assets over $100 billion to give shoppers the option of at least one network that is not Visa or Mastercard. Nearly 2,000 retailers, platforms and smaller businesses, such as Walmart, Target, Amazon, Best Buy, Shopify and Kroger, are pressing legislators to pass the bill. Retailers seeking passage of the bill assert that credit card processing expenses are damaging buyers by pushing up business fees and hence the amount consumers must pay at checkout. On the other side, major credit card processing networks like Discover, Visa, Mastercard and Capital One contend that the bill in actuality hurts shoppers by reducing the protection against fraud and cutting down famous credit card rewards programs. Since its re-introduction, bipartisan support has intensified for the bill. Currently, there is no date set for the vote in either chamber but all signs indicate it could be voted on by the end of the year. Doug Kantor, a member of the Merchants Payments Coalition executive committee, feels "positive" it will eventually become part of a larger piece of legislation. Senator Dick Durbin from Illinois, who backs the bill and is a vocal advocate, said in a statement to CNBC, "It is time to introduce true competition into the credit card network market which is currently dominated by the Visa-Mastercard duopoly." According to the Nilson Report, which tracks the global payment industry, Visa and Mastercard make up 80% of all credit card volume. Durbin added that the bill will "assist in reducing swipe fees and curtailing expenses for Main Street merchants and their customers." Credit card swipe fees make up, on average, 2.24% of a purchase, based on the Merchant Payments Coalition. Therefore, some enterprises add surcharges to payment with credit or debit cards to get customers to use cash. The new legislation states that banks with more than $100 billion in assets must give customers the option of at least two payment networks to process credit card payments. It also requires that Visa and Mastercard can only make up one of the selections to avoid the two biggest networks being the only options provided to traders. Shopify President Harley Finkelstein proclaimed, "Interchange fees are, in essence, attacks on commerce. We started noticing that these fees kept going up and up and up and we felt something was off." The e-commerce platform, which is present in 175 countries, revealed that relative to other nations it operates in, interchange fees are highest in America. Major platforms and retailers, such as Amazon and Walmart, and payment processors, like Capital One, Discover and Visa, are investing funds in campaigns to approve or veto the bill. According to data from Open Secrets, a non-profit that tracks political funding and lobbying info, 27 organizations have mentioned the Credit Card Competition Act in their 2023 first-quarter lobbying accounts prior to the bill being reintroduced last month. The Electronic Payments Coalition, a group that represents big banks, payment card networks, credit unions and community banks, said in a post on their website that the legislation "would add billions of dollars to the profits of large retailers each year while almost completely wiping out the funding for popular credit card reward programs, diminishing security protections, and decreasing access to credit."
CNBC has contacted a number of major credit card processors including Visa, American Express, Discover and Capital One, but all either declined to comment or referred to the Electronic Payments Coalition. Despite multiple attempts, Mastercard did not provide a response. The stocks of Visa and Mastercard have risen more than 12% as of Friday's closing. Aaron Stetter, the executive director of the Electronic Payments Coalition, claims that the proposed bill will lead to a decrease in interchange revenue. He believes that the bill is a "bait and switch" and harms consumers due to the merchant gaining decision-making power over the routing of the transaction, which could lead to a cheaper network with fewer fraud protections and no customer rewards programs.
In 2010, as part of the Dodd-Frank Act aimed at regulating the financial industry in the wake of the 2008 economic crisis, the Durbin amendment was passed in the hopes that merchants would, in turn, reduce prices for consumers by passing on debit card processing savings. However, a 2015 Richmond Federal Reserve survey revealed that the Durbin amendment essentially had little effect, as only 1.2% of merchants had reduced prices and 11.1% benefitted from a decline in debit card processing fees. While almost a third of respondents reported higher debit card swipe fees, The Points Guy founder Brian Kelly referred to the Durbin amendment as the “grim reaper of debit card rewards” in a July 11 appearance on CNBC’s “The Exchange.”
Kelly stated that, when the amendment was enacted over a decade ago, there was an increase in fees and consumers could no longer earn rewards on debit cards. ThePointsGuy.com is known for listing card offers that reward credit card companies, a detail that can be found at the bottom of their webpage. However, a research paper from CMSPI argued that the bill would not have a drastic effect that Kelly is hypothesizing. The paper indicated that credit card rewards are not likely to cease due to current profit margins from reward systems. Additionally, CMSPI estimated that the new legislation would save merchants and customers more than $15 billion annually in swipe fees, a number that is nearly 70 times greater than any expected decrease in rewards.
Businesses are finding alternative ways to reduce fees, independent of any laws.Tandym, an up-and-coming company that gives e-commerce businesses the opportunity to generate their own debit or credit cards, like those issued by big-box retailers, is fighting exorbitant interchange fees through innovation.Before launching Tandym, CEO Jennifer Galspie-Lundstrom worked for Capital One for seven years. She believes that the Credit Card Competition Act could take years to implement and would be a drain on resources, asserting that invention is the answer to lower costs. "We don't use the rails of Visa, Mastercard, American Express, or Discover," she noted. "Essentially, we've set up a separate network that ties us directly to a vendor."Tandym's interchange fees are usually around 80% lower since it does not fund its own cash-back incentives or rewards programs. Rather, Tandym assists smaller digital companies, similar to online bike shop Jenson USA, to make use of the savings and fashion linked loyalty programs.Jenson brought Tandym on as a payment option for their customers at the start of this year. According to Jenson's director of IT, Jeff Bolkovatz, orders placed on Tandym's network are nearly 2% cheaper than those processed via Visa or Mastercard, and that saving is currently being used to back a 5% rewards scheme for their customers.It looks like customers are pleased with the program; each buyer has placed an average of 2.5 orders since Jenson USA began offering Tandym as a payment option, Bolkovatz reported.
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