Retailers and payment networks clash over credit card fees

A bipartisan effort in Washington to regulate credit card fees has ignited a clash between retailers and network payment processors, with both sides vying for consumer attention.

The Credit Card Competition Act, reintroduced recently in Congress, seeks to enhance competition for credit card processing networks by compelling major banks to allow at least one alternative network besides Visa or Mastercard for their cards. This move would provide merchants paying interchange fees with a choice they rarely have.

Nearly 2,000 retailers, including Amazon, Best Buy, Kroger, Shopify, Target, and Walmart, have rallied in support of the bill, asserting that credit card processing costs are burdening consumers by driving up business expenses, which are then passed on to shoppers at checkout.

On the opposing front, major credit card processing networks like Visa, Mastercard, Discover, and Capital One argue that the legislation will negatively impact consumers by diminishing popular credit card rewards programs and reducing fraud protections.

While bipartisan support for the bill has grown, no voting schedule has been set. However, there are indications that a vote could take place by the end of the year.

The bill’s provisions and goals

The bill would mandate banks with assets exceeding $100 billion to offer customers a choice of at least two different payment networks for credit card transactions. Moreover, it stipulates that Visa and Mastercard can only account for one of these choices, preventing them from being the sole options for merchants.

The contentious issue of swipe fees, which are often included in consumer prices, has escalated, reaching a record $160.7 billion in 2022. The bill aims to address this concern by fostering competition and reducing swipe fees.

The arguments for and against the bill

As the battle continues, major players such as Amazon, Shopify, Walmart, and Capital One are actively funding efforts to either pass or block the bill. The Electronic Payments Coalition, representing big banks and payment card networks, opposes the legislation, arguing that it would benefit mega-retailers but adversely impact credit card rewards programs and cybersecurity measures.

Comparisons have been drawn to the Durbin amendment passed in 2010, which sought to lower debit card processing costs for consumers and merchants. However, a survey showed limited cost reduction and some higher debit card swipe fees.

While opponents of the new bill fear its implications, research from the global payments consulting firm CMSPI suggests that credit card rewards are unlikely to disappear. CMSPI estimates that the legislation could save merchants and customers over $15 billion per year in swipe fees, greatly outweighing any potential reduction in rewards.

The alternatives to traditional payment networks

Amid this battle, innovative solutions are being pursued to cut fees. Startups like Tandym offer e-commerce brands private label debit and credit cards, creating alternative networks with substantially lower interchange fees. These savings can be reinvested in loyalty programs and rewards for customers, fostering customer loyalty and satisfaction.