The fight over a bill targeting credit card fees pits payment companies against retailers

A bipartisan push in Washington to lower credit card fees is pitting retailers against network payment processors, and both sides are working hard to get consumers’ attention.

The Credit Card Competition Act was reintroduced last month in both the House and the Senate, after failing to vote in either chamber during the previous Congress.

The measure aims to bolster competition for credit card processing networks by requiring big banks to allow the use of at least one non-Visa or Mastercard network for their cards. This would give merchants who pay exchange fees an option they would otherwise rarely have.

Amazon, Best Buy, Hands, Shopify, Aim and walmart They are among the list of nearly 2,000 retailers, platforms and small businesses urging lawmakers to pass the bill. Retailers who support the legislation argue that credit card processing costs are hurting consumers by increasing the cost of doing business and, in turn, the price shoppers pay at checkout.

On the other side of the fight, major credit card processing networks like Visa, MasterCard, Discover and capital one they say the bill will really hurt consumers by diminishing popular credit card rewards programs and lessening protections against fraud.

Bipartisan support for the bill has increased since it was introduced last year. As of now, there is no scheduled vote on the measure in either house of Congress, but there are indications that there could be a vote by the end of the year.

Doug Kantor, a member of the executive committee of the Merchant Payments Coalition, remains “optimistic” that the Credit Card Competition Act could end up as a side amendment to broader legislation at some point.

“It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” Sen. Dick Durbin, D-Ill., said in a statement to CNBC. He is one of the bill’s sponsors and one of its most outspoken supporters.

Visa and Mastercard account for 80% of all credit card volume, according to data from the Nilson Report, a publication that tracks the global payments industry. Durbin says the legislation “would help reduce swipe fees and keep costs down for Main Street merchants and their customers.”

Swipe fees are often included in the price consumers pay for goods and services and have more than doubled in the past decade, reaching a record $160.7 billion by 2022, according to the Nilson Report. On average, US credit card swipe fees account for 2.24% of a transaction, according to the Merchants Payments Coalition. That’s why some companies add a surcharge to the bills of customers who pay with debit or credit cards to encourage cash transactions.

The new legislation would require banks with assets of more than $100 billion to provide customers with the choice of at least two different payment networks to process credit card transactions. The bill also stipulates that Visa and Mastercard can only account for one of the options as a way to avoid the two largest networks being the only options offered to merchants.

“Interchange fees are effectively attacks on commerce,” said Shopify President Harley Finkelstein. “We started noticing these rates kept going up and up and up, and we felt like something was up.”

The e-commerce platform known for helping businesses create their own personalized digital stores, operates on 175 countries around the world. “Relative to all the other countries that Shopify operates in, the interchange fees are the highest in the United States,” Finkelstein said.

The largest platforms and retailers like Amazon, Shopify, and Walmart, as well as payment processors like Capital One, Discover, and Visa, are funding efforts to pass or block this bill. In all, 26 organizations mentioned the Credit Card Competition Act by name in their first-quarter 2023 lobbying reports, which were filed before the legislation was reintroduced last month, according to data from Open Secrets, a group nonprofit that tracks campaign finance and lobbying data. .

The Electronic Payments Coalition, a group representing big banks, credit unions, community banks and payment card networks, said the legislation would “add billions of dollars to the bottom line of mega-retailers every year and eliminate nearly all the funds that are destined to the popular credit”. card rewards programs, weakening cybersecurity protections and reducing access to credit,” in a June 9 post on its website.

CNBC reached out to major credit card processors, including Visa, American Express, Discover, and Capital One. All declined to comment or referred us to the Electronic Payments Coalition. Mastercard did not provide a response despite multiple attempts by CNBC to obtain one.

Visa and Mastercard shares were up more than 12% each this year as of Friday’s close.

“Interchange revenue will dry up,” according to Aaron Stetter, executive director of the Electronic Payments Coalition.

Stetter describes the bill as a “bait and switch that hurts consumers,” because it “ultimately gives the decision making of where the transaction will be routed to the merchant” rather than the card issuer or consumer.

Opponents say the bill misleads consumers who may think their Mastercard or Visa credit card is processed through the Visa network, but could actually end up being routed through a separate, cheaper network with fewer protections. against fraud and few or no customer rewards programs, according to Stetter. .

In 2010, lawmakers passed the Durbin Amendment as part of the Dodd-Frank Act, which sought to tighten financial regulation in the wake of the 2008 economic crisis. The amendment was supposed to trigger a trickle-down savings effect, where merchants would spend debit card processing savings to customers in the form of lower prices for your goods and services.

but a survey 2015 conducted by the Richmond Federal Reserve found that the Durbin Amendment did little to reduce costs for consumers and businesses. Only 1.2% of the merchants surveyed reduced prices and 11.1% said their debit card processing costs have decreased. According to the survey, nearly a third of respondents reported even higher fees for swiping debit cards.

Brian Kelly, founder of travel blog The Points Guy, referred to Durbin as the “reaper of debit card rewards” during his July 11 appearance on CNBC’s “The Exchange.”

“When you passed that amendment more than a decade ago, we not only saw an increase in fees, but consumers could no longer earn rewards with debit cards,” Kelly said. ThePointsGuy.com is compensated by credit card companies for the card offers listed on its website, according to a disclosure at the bottom of the webpage.

But a new research paper from global payments consultancy CMSPI argues that the new bill won’t have the kind of terrifying impact Kelly warns about. “Credit card rewards are unlikely to go away based on the issuer’s current margins on rewards and experience from other markets,” according to the CMSPI document.

The same firm also estimates that the new legislation would save merchants and their customers more than $15 billion a year in transfer fees. That savings would be nearly 70 times greater than any expected reduction in rewards, according to the new study.

Companies are testing other ways to lower fees, regardless of the legislation.

Tandym, a startup that offers e-commerce brands the opportunity to create a private label credit and debit card, similar to retail brand credit cards, is tackling the problem of high interchange fees through the technology.

Prior to founding Tandym, CEO Jennifer Galspie-Lundstrom worked at Capital One for seven years. She believes the Credit Card Competition Act would take years and cost billions of dollars to implement, calling it a “massive drain on resources.” Instead, she said innovation will provide the answer at lower fees.

“We don’t travel on the Visa, Mastercard, American Express or Discover trains,” he said. “We’ve essentially created an alternative network where we can connect directly with a merchant.”

Tandym’s exchange fees are typically 80% lower because you don’t use the proceeds to fund your own cash back incentives or rewards programs. Instead, Tandym helps small digital businesses like online bike retailer Jenson USA build loyalty programs embedded with savings.

Jenson began offering Tandym as a payment option to customers earlier this year. Orders processed through Tandym’s network cost about 2% less compared to Visa and Mastercard, according to Jenson’s IT director, Jeff Bolkovatz. Those savings are now being used to help fund a 5% rewards program for Jenson USA customers.

“Basically, we take the savings we get from using Tandym and give it back to the customer to entice them to use it. The goal is to make them more loyal,” he said.

Customers seem to like the program. Each buyer has placed an average of two and a half orders since Jenson USA began offering Tandym as a payment option, Bolkovatz said.