A bipartisan push in Washington to clamp down on credit card fees is pitting retailers against network payment processors — and both sides are working hard to gain the attention of consumers.
The Credit Card Competition Act was reintroduced last month in both the House and the Senate, after not being brought up for a 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 at least one network that isn't Visa or Mastercard to be used for their cards. This would give merchants who pay interchange fees a choice they otherwise rarely get.
Amazon, Best Buy, Kroger, Shopify, Target and Walmart are among the list of nearly 2,000 retailers, platforms and small businesses urging lawmakers to pass the bill. Retailers in support of the legislation argue credit card processing costs are hurting consumers by driving up the cost of 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 say the bill will actually hurt consumers by diminishing popular credit card rewards programs and lessening fraud protections.
Bipartisan support for the bill has surged since it was introduced last year. As of now, there is no vote scheduled on the measure in either chamber of Congress, but there are indications a vote could come by year-end.
Doug Kantor, a member of the Merchants Payments Coalition executive committee, remains "optimistic" that the Credit Card Competition Act could end up as an amendment attached to a larger piece of 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's a sponsor of the bill and one of its most outspoken advocates.
Visa and Mastercard account for 80% of all credit card volume, according to data from the Nilson Report, a publication tracking the global payment industry. Durbin says the legislation would "help reduce swipe fees and hold down costs for Main Street merchants and their customers."
Swipe fees are often built into the price consumers pay for goods and services and have more than doubled in the past decade, hitting a record $160.7 billion in 2022, according to the Nilson Report. On average, U.S. credit card swipe fees account for 2.24% of a transaction, according to the Merchants Payments Coalition. That's why some businesses add a surcharge to bills for customers paying with debit or credit cards to encourage cash transactions.
The new legislation would require banks with assets over $100 billion to provide customers with a 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 choices as a way to prevent the two largest networks from being the only options offered to merchants.
"Interchange fees are effectively attacks on commerce," said Shopify president Harley Finkelstein. "We began to notice that these fees kept climbing and climbing and climbing, and we felt that something was up."
The e-commerce platform known for helping businesses create their own custom digital stores, operates in 175 countries worldwide. ""Relative to every other country Shopify operates in, interchange fees are the highest in America," Finkelstein said.
Larger 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 total, 26 organizations have mentioned the Credit Card Competition Act by name in their 2023 first-quarter lobbying reports, which were filed before the legislation was reintroduced last month, according to data from Open Secrets, a nonprofit group tracking 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 lines of mega-retailers every year while eliminating almost all the funding that goes towards popular credit cards 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 CNBC's multiple attempts to get one.
Shares of Visa and Mastercard are up more than 12% each this year as of Friday's close.
"Interchange revenue will dry up," according to Aaron Stetter, the executive director of the Electronic Payments Coalition.
Stetter describes the bill as a "bait and switch that harms consumers," because it "ultimately gives the decision-making of where the transaction is going to be routed to the merchant" instead of the card issuer or consumer.
Opponents say the bill misleads consumers who may think that their Mastercard or Visa credit card is being processed over the Visa network but could actually end up being routed over a separate cheaper network with fewer fraud protections and little to no customer rewards programs, according to Stetter.
History repeats itself?
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 cause a trickle-down savings effect, where merchants would pass along debit card processing savings to customers in the form of lower prices for their goods and services.
But a 2015 survey conducted by the Richmond Federal Reserve found the Durbin amendment did little to lower costs for consumers and merchants. Just 1.2% of the surveyed merchants reduced prices, and 11.1% said their debit card processing costs declined. Nearly one-third of respondents reported even higher debit card swipe fees, according to the survey.
Brian Kelly, founder of the travel blog The Points Guy, referred to Durbin as the "grim reaper of debit card rewards" during his July 11 appearance on CNBC's "The Exchange."
"When he passed that amendment over a decade ago, not only did we see fees go up, but consumers could no longer earn rewards on 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 the global payments consulting firm CMSPI argues the new bill won't have the kind of dire impact Kelly is warning about. "Credit card rewards are unlikely to disappear based on current issuer margins on rewards and experience from other markets," according to the CMSPI paper.
The same firm also estimates the new legislation would save merchants and their customers more than $15 billion a year in swipe fees. That savings would be nearly 70 times the amount of any expected reduction in rewards, according to the new study.
Innovation and lower fees
Businesses are trying other ways to cut fees, regardless of legislation.
Tandym, a startup offering e-commerce brands the chance to create a private label debit and credit card, similar to big-box retailer-branded credit cards, is tackling the problem of high interchange fees through technology.
Before 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 execute, calling it a "massive resource drain." Instead, she said innovation will provide the answer to lower fees.
"We do not ride the Visa, Mastercard, American Express or Discover rails," she said. "We've created essentially an alternative network where we can connect directly to a merchant."
Tandym's interchange fees are typically 80% lower because it is not using the revenue to fund its own cash back incentives or rewards programs. Instead, Tandym helps small digital businesses like online bike retailer Jenson USA build integrated loyalty programs with the savings.
Jenson started offering Tandym as a payment option to customers earlier this year. Orders processed over Tandym's network cost about 2% less compared with Visa and Mastercard, according to Jenson's director of IT, Jeff Bolkovatz. Those savings are now being used to help fund a 5% rewards program for Jenson USA's customers.
"We basically just turned the savings that we got by using Tandym and gave it back to the customer to entice them to use it. The goal is to get them to be more loyal," he said.
Customers seem to like the program. Each shopper has placed an average of two and a half orders since Jenson USA started offering Tandym as a payment option, Bolkovatz said.
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