The Credit Card Competition Act, a legislative measure aimed at fostering competition in credit card processing networks, is quickly becoming a much-contested issue. According to CNBC, the proposed legislation seeks to mandate big banks to permit at least one network—that’s not Visa or Mastercard—for their cards. If approved, this will give merchants more choice around payment processing.
Roughly 2,000 retailers, platforms, and small businesses—including Amazon, Best Buy, and Walmart—are pushing to pass the bill, stating that the excessive interchange fees are driving up the cost of business. They said that if fees were decreased, they would pass on the savings to consumers.
While that’s certainly a nice theory, look at what happened when the Durbin Amendment took a similar approach to creating more competition in debit card rails. As CNBC pointed out, a 2015 survey from the Richmond Federal Reserve found that just 1.2% of the surveyed merchants reduced prices, and only 11.1% saw their debit card processing costs decrease.
Credit Card Opposition
Visa, Mastercard, Discover, and Capital One—unsurprisingly—are against the proposed bill. If the bill passes, they argue, it will have a negative impact on consumers.
In June, the Electronic Payments Coalition, which is a group that represents many big banks, financial institutions and credit unions, released a joint statement on their reasoning behind opposing the Credit Card Competition Act.
“This legislation would allow big-box retailers—like Walmart and Target—to process credit card transactions based solely on what is cheapest for them without regard to the value that consumers derive from rewards and many other benefits. This would add billions of dollars to the bottom lines of mega-retailers every year while eliminating almost all the funding that goes towards popular credit cards rewards programs, weaking cybersecurity protections, and reducing access to credit. Keep reading below to learn more,” the statement noted.
The Electronic Payments Coalition also acknowledged the failure of the original Durbin Amendment stating that “big-box retailers and convenience stores promised to pass savings from debit card interchange feed caps on to consumers—then never did.”
The bill has bipartisan support, indicating that credit card companies will have to really work to gain sympathy. Aaron Stetter, Executive Director of the Electronic Payments Coalition told CNBC that he has concerns that consumers might be misled into thinking their credit cards are processed through familiar networks like Visa or Mastercard when they may end up routed through cheaper alternatives with fewer fraud protections and rewards programs.
But it’s still early days, and much may still unfold in the coming weeks.
