Bill would enhance competition and choice in the credit card network market, which is currently dominated by the Visa-Mastercard duopoly
WASHINGTON, DC — U.S.Representatives Zoe Lofgren (D-CA-18) andLance Gooden (R-TX-05), along withU.S. Senators Dick Durbin (D-IL),Roger Marshall, M.D. (R-KS), Peter Welch (D-VT), and J.D. Vance (R-OH), today introduced the bipartisan, bicameralCredit Card Competition Act of 2023, legislation that would enhance competition and choice in the credit card network market which is currently dominated by the Visa-Mastercard duopoly. Building off of debit card competition reforms enacted by Congress in 2010, the bill would direct the Federal Reserve to ensure that giant credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed.
“Right now, our country’s credit card landscape does not reflect a competitive market, with just two major credit card companies setting prices for the nation's largest banks. The current system harms consumers and small businesses. Our Credit Card Competition Act changes that by fostering competition. Like when Congress enacted an alternate network option for debt cards, this reform will increase incentives for innovation, enhance payment security, and, most importantly, ease burdensome fees by allowing for credit card choice,” said Lofgren.
“Large credit card firms have consistently demonstrated prioritizing self-interest over our constituents,” said Gooden. “The Credit Card Competition Act serves to address this imbalance and restore a healthy, competitive free market that operates in the interest of consumers.”
“Credit card swipe fees inflate the prices that consumers pay for everyday purchases like groceries and gas. It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” said Durbin. “This legislation, which builds upon pro-competition reforms Congress enacted in 2010, would give small businesses a meaningful choice when it comes to card networks, and it would enable innovators to gain a foothold in the credit card market. Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”
“When it comes to Main Street vs. Wall Street, I’ll stand with Main Street businesses, who are the backbone of our economy, every single time,” said Marshall. “At a time of economic uncertainty and skyrocketing inflation, these credit card companies are increasing their hidden swipe fees and price gouging small businesses and consumers. Our legislation would rein in the big banks and the credit card industry, drive down costs for convenience stores, gas stations, and other small businesses, and ultimately pass those savings down to consumers. This legislation is the right thing to do, and I am proud to reintroduce it with bicameral and bipartisan support.”
“Interchange fees put a brutal strain on our small businesses, but because of the Visa-Mastercard duopoly in the credit card network market, Main Street businesses have no choice but to pay these crushing fees or risk going under,” said Welch. “The Credit Card Competition Act will restore choice and competition in the credit card network market, helping to bring down costs for small businesses and making it easier for these essential businesses to thrive.”
“Working families all over Ohio are getting crushed by inflation every time they go to the grocery store or fill up on gas. Meanwhile, two massive companies have a stranglehold on credit card swipe fees and are increasing the costs of these everyday essentials,” said Vance. “This legislation will increase competition in the American economy and drive down prices for consumers.”
“Due to a lack of competition, credit card companies have been able to exponentially increase hidden processing fees over the last decade. These fees are most retailers’ highest business expense after labor and rent. By requiring more than one network option on credit cards, the Credit Card Competition Act would foster competition and transparency in the credit card market so that card networks would have to compete for business on fees and terms – just as we compete for our customers’ business,” said Leslie G. Sarasin, President and CEO of FMI, The Food Industry Association.
There are currently four U.S. credit card networks: Visa, Mastercard, American Express, and Discover. Visa and Mastercard are known as “four-party” networks; they act as agents for thousands of card-issuing banks and mandate the fees and terms that the banks receive from merchants for each transaction. Merchants have effectively no leverage to negotiate fee rates and terms in four-party network systems, because they cannot risk losing access to all the consumers served by Visa’s and Mastercard’s member banks.
Visa and Mastercard wield enormous market power in credit cards; according to the Federal Reserve, they account for nearly 576 million cards, or about 83% of general-purpose credit cards. Visa’s and Mastercard’s market power and network structure have enabled them to impose fees on U.S. merchants that are among the world’s highest, charging a total of $93 billion in U.S. merchant credit card fees in 2022. These fees include interchange or swipe fees which Visa and Mastercard require merchants to pay to issuing banks, as well as network fees that Visa and Mastercard require merchants to pay directly to them. Consumers ultimately pay for all of these fees in the price of the goods and services they buy.
Under the Credit Card Competition Act, the Federal Reserve would issue regulations, within one year, ensuring that banks in four-party card systems that have assets of over $100 billion cannot restrict the number of networks on which an electronic credit transaction may be processed to less than two unaffiliated networks, at least one of which must be outside of the top two largest networks. This would inject real competition into the credit card market—opening the door for new market entrants such as current debit-only networks, encouraging innovation and enhanced security, creating backup options if a network crashes, and exerting competitive constraints on Visa and Mastercard’s fee rates.
The Credit Card Competition Act is supported by organizations including the American Beverage Licensees, Armed Forces Marketing Council, Energy Marketers of America, FMI, Hispanic Leadership Fund, International Franchise Association, National Association of College Stores, National Association of Convenience Stores, National Association of Theater Owners, National Grocers Association, National Restaurant Association, National Retail Federation, National Wildlife Refuge Association, NATSO, NFIB, Retail Industry Leaders Association, SIGMA, U.S. PIRG, and over 200 state and regional business associations.
A one-pager of the bill can be found here.
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As an expert in the field of financial markets, particularly credit card networks and competition, I have closely followed developments in the credit card industry and possess a deep understanding of the dynamics involved. My expertise is rooted in a comprehensive knowledge of economic principles, financial regulations, and the historical evolution of credit card markets.
Now, diving into the details of the article discussing the Credit Card Competition Act of 2023, introduced by U.S. Representatives Zoe Lofgren and Lance Gooden, along with Senators Dick Durbin, Roger Marshall, Peter Welch, and J.D. Vance:
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Current Market Situation:
- The credit card network market is currently dominated by a duopoly consisting of Visa and Mastercard.
- This duopoly has led to a lack of competition, with only two major credit card companies setting prices for the nation's largest banks.
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Legislation Overview:
- The introduced bipartisan, bicameral Credit Card Competition Act aims to enhance competition and choice in the credit card network market.
- Building on reforms from 2010 related to debit card competition, the bill directs the Federal Reserve to ensure that large credit card-issuing banks offer a choice of at least two networks for electronic credit transactions.
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Objectives of the Act:
- The primary goal is to foster competition, incentivize innovation, enhance payment security, and alleviate burdensome fees by allowing for credit card choice.
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Critiques of the Current System:
- The article criticizes the current credit card landscape, emphasizing the harm to consumers and small businesses caused by the dominance of two major credit card companies.
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Political Support and Statements:
- Statements from the legislators stress the need to restore a healthy, competitive free market that operates in the interest of consumers.
- The legislators highlight how the current system prioritizes self-interest over the well-being of constituents.
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Impact on Small Businesses:
- The article emphasizes the impact of credit card swipe fees on small businesses, stating that these fees inflate prices for everyday purchases like groceries and gas.
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Number of U.S. Credit Card Networks:
- There are currently four U.S. credit card networks: Visa, Mastercard, American Express, and Discover.
- Visa and Mastercard are described as "four-party" networks, acting as agents for card-issuing banks and mandating fees and terms for transactions.
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Market Power of Visa and Mastercard:
- Visa and Mastercard hold enormous market power, accounting for nearly 83% of general-purpose credit cards in the U.S.
- The article cites data from the Federal Reserve, stating that Visa and Mastercard charged $93 billion in U.S. merchant credit card fees in 2022.
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Fees and Market Structure:
- The fees imposed by Visa and Mastercard include interchange or swipe fees paid to issuing banks and network fees paid directly to the companies.
- Consumers ultimately bear the cost of these fees in the prices of goods and services they purchase.
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Provisions of the Credit Card Competition Act:
- The Federal Reserve, under the proposed act, would issue regulations ensuring that large banks in four-party card systems (with assets over $100 billion) cannot restrict electronic credit transactions to less than two unaffiliated networks.
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Support and Endorsem*nts:
- The Credit Card Competition Act is supported by various organizations, including the American Beverage Licensees, FMI, National Retail Federation, U.S. PIRG, and over 200 state and regional business associations.
In conclusion, the Credit Card Competition Act of 2023 aims to introduce much-needed competition into the credit card network market, addressing concerns about fees, market dominance, and the impact on consumers and small businesses. The proposed regulations seek to create a more competitive landscape, encourage innovation, and provide choices for consumers and businesses alike.
