Visa Inc. and Mastercard Inc. credit cards were photographed in Tiskilwa, Illinois, U.S.Daniel Acker | Bloomberg | Getty Images
There is a bipartisan effort in Washington to regulate credit card fees, causing a divide between retailers and network payment processors. Both sides are actively trying to gain the attention and support of consumers.
The Credit Card Competition Act was reintroduced in the House and Senate last month after not being voted on in the previous Congress. The goal of the measure is to increase competition for credit card processing networks by requiring big banks to allow at least one network other than Visa or Mastercard to be used for their cards. This would give merchants who pay interchange fees more choice. A number of major retailers, including Amazon, Best Buy, Kroger, Shopify, Target, and Walmart, are urging lawmakers to pass the bill. These retailers argue that credit card processing costs are hurting consumers and increasing the overall cost of business, which is then passed on to shoppers at checkout.
On the other side of the debate, major credit card processing networks like Visa, Mastercard, Discover, and Capital One argue that the bill will ultimately harm consumers. They believe it will diminish popular credit card rewards programs and reduce fraud protections.
The bill currently has bipartisan support and could potentially be attached as an amendment to larger legislation at some point. There is no scheduled vote on the measure yet, but it may happen later this year.
The two dominant credit card companies, Visa and Mastercard, account for 80% of all credit card volume according to the Nilson Report. Supporters of the bill argue that reducing swipe fees would benefit Main Street merchants and their customers. Swipe fees have more than doubled in the past decade, reaching a record $160.7 billion in 2022, and they typically account for around 2.24% of a transaction. Some businesses have started adding surcharges to encourage cash transactions due to these high fees.
The proposed legislation would require banks with assets over $100 billion to offer customers a choice of at least two different payment networks for credit card transactions. Visa and Mastercard would be limited to being only one of the choices, preventing them from being the sole options for merchants.
Critics of the bill claim that it misleads consumers by potentially routing their transactions over cheaper networks with fewer fraud protections and rewards programs. They argue that the bill will ultimately harm consumers rather than helping them.
In 2010, a similar amendment called the Durbin amendment was passed as part of the Dodd-Frank Act. It was meant to reduce costs for consumers and merchants, but a survey conducted in 2015 found that it had little impact. Some opponents of the Credit Card Competition Act fear a similar outcome.
Despite the ongoing debate, businesses like startup Tandym are trying to find alternative solutions to high interchange fees. Tandym offers e-commerce brands the opportunity to create their own branded debit and credit cards, bypassing traditional payment networks. By connecting directly to merchants, Tandym is able to offer significantly lower interchange fees. Instead of using the savings to fund rewards programs, Tandym helps small digital businesses build loyalty programs with the savings. This innovative approach could provide a solution to high fees without the need for legislation.