The Credit Card Competition Act creates an open marketplace for credit card processing for retailers.
NATIONAL REPORT — New swipe fee legislation introduced in Congress that would create choice for the processing of credit card purchases is receiving support from multiple leading retail associations.
NACS, Retail Industry Leaders Association (RILA), the National Retail Federation (NRF) and the Merchants Payments Coalition (MPC) are rallying behind the Credit Card Competition Act, which seeks to bring long-overdue competition to the market and addresses the estimated more than $138 billion in exorbitant swipe fees imposed on U.S. retailers.
The bill, introduced by Majority Whip Dick Durbin (D-Ill.) and Senator Roger Marshall (R-Kan.), would require the largest U.S. banks that issue Visa or Mastercard credit cards to allow transactions to be processed over at least two unaffiliated card payment networks — the same process that has been used for debit card transactions for more than a decade. According to payments consulting firm CMSPI, credit card routing competition would reduce swipe fees by $11 billion or more annually.
"With 41-year high inflation and record gas prices, convenience retailers have seen a historic jump in their credit card fees, which were up 33 percent in the first quarter of this year. While our retailers can negotiate the cost of other goods and services in their stores, they are powerless when it comes to negotiating with the credit card industry," said NACS Director of Government Relations Anna Ready Blom. "NACS strongly supports the Credit Card Competition Act because it injects competition in a market that is otherwise devoid of it, giving retailers a real choice when routing transactions."
The legislation proposes an open marketplace for credit card processing where retailers could choose which service provider to use to handle a transaction. Under the bill, one network on a credit card could be Visa or Mastercard, but the largest banks that issue credit cards would also have to include an unaffiliated competitor, such as another credit card network or one of the dozen card payment networks that process debit card transactions. Currently, independent networks equipped to route these transactions have been blocked from entering the market.
"Processing credit card transactions should not be limited to two companies when there are a dozen that can do the job just as well," NRF Vice President for Government Relations, Banking and Financial Services Leon Buck said. "Routing choice has saved retailers and their customers billions in the debit card market and can do even more in the much-larger credit card market. This is a giant step forward in bringing about the transparency and competition retailers have sought for years.
"Credit card swipe fees have been driving up prices paid by American consumers for decades but are particularly burdensome amid the near-record inflation families face today," he continued. "These fees are a percentage of the transaction, so they take even more out of retailers' and consumers' pockets as prices go up. They are a significant factor in inflation, but one that could be minimized if the card industry would compete the same as other businesses."
In the United States, banks that issue Visa and Mastercard credit cards charge a swipe fee that averages 2.25 percent of the purchase price when the cards are processed over Visa or Mastercard's networks, a rate that is significantly higher than in other countries. American businesses pay seven times more in swipe fees than businesses in Europe and five times more than businesses in China.
Austen Jensen, RILA executive vice president of government affairs, pointed out that in 2021, U.S. retailers paid $138 billion to accept electronic payments, a significant increase from 2015 when merchants paid $83 billion, and this past year's number of $64 billion is more than double what the retail community paid in 2011.
"This current trajectory is simply unsustainable and reflects a broken market," he said. "RILA believes competition is the hallmark of America's retail industry. It drives innovation and brings consumers lower prices and new products and services. However, the absence of competition in the payments ecosystem has resulted in the U.S. being one of the most expensive countries in the world to accept credit cards. This legislation will help inject competition into the payments market and RILA applauds the bipartisan efforts by Senators Durbin (D-IL) and Marshall (R-KS) for their leadership in this arena."
Visa and Mastercard dominate the U.S. market and issue 83 percent of all credit cards. Without competition in the market, credit card swipe fees continue to rise year after year, and since they are a percentage of the transaction cost, they multiply with every cent of inflation.
"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," said MPC Executive Committee member and NACS General Counsel Doug Kantor. "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. 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."
Visa and Mastercard have repeatedly tried to inhibit debit card network competition. Foreseeing a similar issue by the networks, the bill seeks to prohibit interference with routing on credit cards, including a requirement that proprietary mechanisms owned by Visa or Mastercard not be used to block their competitors' transactions. 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.
"Small businesses are struggling now, and the increased cost of swipe fees makes it that much harder to do business, especially as more customers pay with cards," said Ready Blom, noting that 75.4 percent of all transactions at convenience stores are made with payment cards, including 87 percent of gas purchases.
"Convenience retailers thrive on competition and have introduced incredible innovations over the past two years to ensure Americans had access to fuel, food and other necessities," she continued. "Yet these businesses paid an overwhelming amount in credit card swipe fees. It is common sense to allow for routing competition on credit cards, just as we have on debit cards. Our local businesses and the communities they serve deserve this long-overdue change."
NACS is a founding member and serves on the Executive Committee of the Merchants Payments Coalition, a coalition comprising NACS and other merchant groups representing brick-and-mortar and online retailers.