Introduction of ‘Credit Card Competition Act’ to Congress,
What’s the impact on retailers?
What is the Credit Card Competition Act of 2023?
The Credit Card Competition Act of 2023, which was introduced to Congress in June 2023, is a response to the duopoly of Visa and MasterCard in the current credit card market and the high fees they charge. In fact, Visa and Mastercard dominate the market, accounting for about 80% of all credit card transactions, supporting the high card transaction fees for both consumers and retailers. Currently, credit card fees in the U.S. are seven times higher than in Europe.
The purpose of the bill is to mandate that banks accept alternative card payment networks, in addition to Visa and MasterCard, to increase competition and thus lower card fees. When a bank issues a credit card, the transaction goes through the bank’s designated network of card issuers, which means that the bank is guaranteed to benefit from partnering with certain card issuers.
How will retailers benefit from this legislation?
Swipe fees are the costs that are paid by merchants who accept payments other than cash, and they are one of the highest operating expenses for most retailers, second only to labor costs. If passed, the bill would give sole proprietors and businesses a choice of at least two card networks and the ability to competitively negotiate fees, cutting costs for both large and small businesses on swipe fees. It should result in having more money to reinvest in the business, whether it’s hiring more employees, upgrading facilities, or expanding product offerings.
Many small business owners are supporting the bill in hopes of reducing the cost of card transactions. The National Retail Federation (NRF) has launched a grassroots campaign to encourage retailers to vote in favor of the bill, which benefits retailers by reducing costs, and the bill is also supported by the Merchant Payments Coalition (MPC).
Low-income households and racial minorities will benefit more from lower fees
In the current system, low-income households are limited in their ability to maximize benefits offered by credit cards due to their low credit score. As a result, they are paying the same high fees while not getting the same benefits. This is because payment fees apply across the board while benefits of using a credit card differ largely from a credit card account to another. With this legislation, lower merchant fees can provide relief to the rising consumer price, removing one of the drivers of inflation.
While some have argued that the wealthy will lose out with these reforms, they are expected to provide overall economic benefits to hardworking American workers. The card industry’s fees will also benefit the mass consumer and strengthen the virtuous cycle of production and consumption that are the backbone of the U.S. economy.
Credit Card Competition Act: the opponents’ view
The opposition to the bill comes from a number of factors. The argument is that swipe fees support a variety of services, including fraud prevention, transaction facilitation, and rewards programs, and reducing them could undermine credit card rewards programs and security features. Many say that if fees were lowered due to the Credit Card Competition Act, it would not lead to price reductions or benefits for consumers but would only benefit large retailers and online retailers who generate additional revenue.
How likely is the bill to pass?
No voting is scheduled on the bill in either the Senate or the House of Representatives at this time. However, some experts are weighing in on the likelihood that both Democrats and Republicans will support passing the bill by the end of the year in an effort to secure votes ahead of next year’s presidential election. On the other hand, opponents of the bill, including the banking and credit card industries, are sending lobbyists to Washington, DC, fueling a fierce battle.