The U.S. credit card market is broken and unfair. Every time a credit card is used, the business accepting the card is forced to pay an exorbitant, non-negotiable “swipe” fee to process the transaction. These fees are not set in a competitive or transparent manner and are most retailers’ highest operating cost after labor, with debit and credit card swipe fees costing merchants nearly $138 billion in 2021. Far too large for merchants to absorb, they are the highest in the industrialized world and drive up prices by an estimated $900 a year for the average family.
Congress is taking note of this unfair abuse of power and is considering legislation called the Credit Card Competition Act. The bill would make important reforms to the credit card market to increase competition and lower costs by requiring that at least two competing processing networks be enabled on each credit card.
Tell Congress to support the Credit Card Competition Act.
Big banks and card networks are desperate to maintain their control and power over the credit card market, which allows them to profit by billions of dollars annually. Any proposed change to the status quo triggers a series of falsehoods about how increased competition would affect their industry and consumers. Here are five lies the big banks and card networks tell about swipe fee reform.
Lie # 1: CCCA will reduce competition.
The truth is that the Credit Card Competition Act would infuse competition into the market. Currently, Visa and Mastercard control 80% of the U.S. credit card market and single-handedly set the swipe fees charged by the thousands of banks across the nation that issue their cards. They also enter into exclusive agreements with banks that keep merchants from using other networks to route credit card transactions over other networks that often offer lower fees and better security.
The CCCA would increase competition by requiring banks to enable at least two competing processing networks on each credit card issued by the nation’s largest banks. One could still be Visa or Mastercard, but the other would have to be an unaffiliated independent network like NYCE, Star or Shazam, or even American Express or Discover. This increased competition could save merchants and consumers over $11 billion annually.
Lie #2: CCCA robs families of their credit card rewards.
The Credit Card Competition Act would not end rewards. Flashy and enticing rewards are a marketing tool used by banks to convince consumers to choose a Visa or Mastercard from one bank rather than another bank. The rewards are determined by the bank that issues the card — not the network that processes the transaction — and paid for by the swipe fees that merchants pay as well as interest and other fees that banks charge.
In fact, the $11 billion in projected savings in swipe fees from the CCCA is only a fraction of the $138 billion in annual swipe fee revenue, leaving banks plenty of money to cover the cost of rewards and still make huge profits. Banks’ profit margins range from 25% to 30%, while retailers’ profit margins hover around 1.5% to 2.5%.
Banks would still be able to pay as much as they want in credit card rewards. And why should consumers — who pay more because of swipe fees regardless of whether they ever redeem a cent in rewards — pay for banks’ marketing program?
Lie #3: Swipe fees reforms are about enriching the largest multinational retailers and stock prices for the biggest players.
The Credit Card Competition Act is critical to small businesses, which are disproportionately impacted by high swipe fees and lack of market competition, especially during this period of inflation. Because of their small volume, small businesses pay the highest swipe fee rates but have the fewest resources to fight back against global credit card networks and Wall Street banks.
Lack of competition has caused credit card swipe fees to continue to rise year after year for all retailers, with fees soaring 25% last year alone. And since they are a percentage of the transaction cost, they increase with every cent of inflation.
Opponents to swipe fee reform are motivated by maintaining profits and market share, period. Last year, Visa’s profit margins were near 52% and Mastercard’s were 46% while merchant profit margins overall averaged less than 3%. During this period of inflation, banks and card network are pocketing even more in profits as prices increase.
Need further proof? During a January earnings call, Visa Chief Financial Officer Vasant Prabhu said, “To the extent that there's inflation driving up ticket size, clearly it's beneficial to us.”
Lie #4: CCCA undermines the nation’s data security.
Increased competition guaranteed by the Credit Card Competition Act would significantly increase the security of our payments market, not reduce it. According to the Federal Reserve, the independent debit networks that would be able to compete with Visa and Mastercard for credit transactions have about one-fifth the fraud of the two giants’ own networks.
In addition, the legislation would specifically ban foreign-controlled networks like China UnionPay from processing transactions, ensuring that U.S. consumer information isn’t outsourced. Currently, the United States has 34% of all credit card fraud in the world despite having only 22% of the world’s transaction volume. That is because Visa and Mastercard — which control the two industry bodies that set security standards — focus on entrenching their dominant market share rather than working to enhance security.
They have even allowed China UnionPay to have a seat on those bodies, essentially granting a Chinese government-controlled entity access to American consumers’ most secure data.
Lie #5: CCCA seriously hurts small community banks and credit unions.
This is perhaps the biggest lie of all. The CCCA only applies to financial institutions with at least $100 billion in assets. According to the Federal Reserve, only 32 banks and one credit union in the entire nation meet that threshold.
The big bank lobby has repeatedly sent representatives from small community banks to Capitol Hill in a desperate attempt to sway policymakers into thinking this bill would be detrimental to Main Street banks and credit unions. That is patently false and shows how far they are willing to go to maintain their power and control over the U.S. payments market. The truth is that not a single community bank or small credit union would be affected by the legislation.
Big banks and card networks are afraid of the Credit Card Competition Act, and they are fighting with all their might to oppose efforts for meaningful reform because they don’t want to give up their massive profits. Now is the time for all retailers and retail advocates to speak up and contact Congress today.
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